TLS posted first half net profit after tax of $2.085bn, which is up 22% over last year and 4% above the $2bn we expected.
Telstra has also announced a steady increase in dividend with the dividend per share to increase from $0.30 in 2014 to $0.34 by 2017.
This will keep the yield chasers happy.
TLS’s growth was driven by stronger revenue growth in Mobile, NAS, and Fixed Line. However, there was also an increase in expenses, which means earnings before interest and tax were down 1.1%.
Telstra also benefited from lower finance costs driven by an accounting change.
The positives to take away from the result are; strong mobile revenue growth +9.6%, PSTN/BB revenue declines of only -1.8%, the best performance since 2009, and NAS revenues +18%.
The negatives included PSTN and Data margin compression and a step up in mobile churn.
Opinions varied on Telstra with most brokers being neutral and some calling the stock a sell.
Our price target is currently $4.60 however; it closed on Friday at $6.59 a full 43% above our target.
Other brokers have a price target of $7.20 however; again, the valuations do not stack up.
It makes sense to take some profit on Telstra at these prices and lock in some gain. It is a strong dividend performer and in a time of low-interest rates, I expect that its price will hold up well.
However, keep in mind once the NBN roll out is finished Telstra will be a reseller like all the other carriers. At that point, the valuation may not hold up.
Between now and then you can be assured of good dividends as the network is slowly purchased from Telstra.
For more information about Telstra (TLS) please contact us on 07 4771 4577.