Telstra Group Ltd (ASX: TLS) was making headlines yesterday after the company released full-year results.
Investors were quick to exit their positions in the defensive telco company as its share price tumbled over 3% during Thursday's session.
Telstra shares initially enjoyed strong momentum in the first few months of the year as investors pushed into defensive sectors.
However it has since lost ground and now is essentially flat year to date.
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What did the company report?
Included in yesterday's report was:
- Operating profit (EBIT) increased by 1.7% to $4 billion,
- Net profit after tax (NPAT) rose 2.7% to $2.4 billion
- Earnings per share (EPS) increased by 5.3% to 19.9 cents.
- Cash earnings grew 11.6% to $2.9 billion, and cash EPS rose 13.8% to 25.5 cents.
The main headline from the results was the dividend increase.
The company announced a final dividend of 10.5 cents per share with 90.48% franking, up 10.5% from the 9.5 cents with 100% franking paid in FY25.
Despite these results, investors were left disappointed as Telstra shares dropped over 3%.
What is Bell Potter's view?
Following the results, the team at Bell Potter provided updated analysis on Telstra shares.
The broker viewed Telstra's FY26 result as broadly in line with expectations, with cash EBIT and EBITDA meeting forecasts, although total income and NPAT were slightly softer.
FY27 guidance was also broadly in line, but cash EBIT was modestly below expectations due to higher-than-expected BAU capex.
Bell Potter has consequently downgraded cash EBIT forecasts by 3% in FY27 and 2% in FY28, while maintaining dividend forecasts and increasing expected franking to 90%.
Limited upside for Telstra shares
Telstra shares closed trading yesterday at $4.84 each.
However the team at Bell Potter sees little upside over the next 12 months.
The broker has an updated one year price target of $4.80 (previously $5.10).
This indicates that Telstra shares are essentially trading at fair value.
Bell Potter also retained its hold recommendation.
We have lowered the multiple we apply in our PE ratio valuation from 23.75x to 22.5x given the slightly disappointing guidance.
We have also reduced the multiple we apply to the Mobile business in our sum-of-the-parts valuation from 8x to 7.75x given the potential threat/risk of increased competition, particularly if the ACCC declares one or more wholesale mobile services post the recently announced enquiry.
The net result is a 6% decrease in our target price to $4.80 which is close to the current share price so we maintain our HOLD recommendation.
