Telstra Corporation Ltd (ASX: TLS) shares are in focus today after holding an investor day for shareholders.
What happened at the investor day?
Telstra announced some news about its Telstra InfraCo. The telco said that it’s proposing a restructure of the business to create three separate legal entities within the Telstra business.
The first will be ‘InfraCo Fixed’ which will own and operate the passive or physical infrastructure assets such as the ducts, fibre, data centres, subsea cables and exchanges.
The ‘InfraCo Towers’ entity will own and operate the passive or physical mobile tower assets, which Telstra will look to monetise over time.
The ‘ServeCo’ business will focus on how to create innovative products and services, support customers and deliver the best possible customer experience.
Why is Telstra doing this?
Telstra said that there are a few key drivers. The increasing value of infrastructure assets globally, the importance of the digital economy and the dependence of the digital economy on telecommunications.
The restructuring will allow Telstra to maximise its optionality and provide greater flexibility to monetise its infrastructure assets.
It intends to launch a process to monetise InfraCo Towers in the 2021 calendar year while preserving the strategic differentiation for its leading mobile network. TowerCo has a net book value of $300 million at 30 June 2020. TowerCo has an EBITDA margin of more than 60% (click here to learn what EBITDA means).
This move appears to firmly have the NBN completion in mind. Telstra said the restructuring will give readiness and flexibility, it will give market options and it will give co-operation options.
Guidance upgrade
Telstra also upgraded its return on invested capital target in FY23 to around 8%. But Telstra is looking forward to when the NBN migration will finish and it’s expecting profit growth from FY22.
Summary thoughts
Telstra seems to be progressing well with its T22 strategy. I think taking advantage of low interest rates and divesting non-core assets could be a wise idea. I’m not exactly sure what Telstra is planning to do with the NBN – perhaps it will divest its InfraCo fixed assets whilst merging it with the NBN.
I think Telstra could create some value for shareholders by taking this strategy. But to me, it seems like an attractive one-off opportunity, rather than an ongoing increase in profitability. It’s that lack of long-term profit potential that still puts me off Telstra. That’s why I prefer other ASX dividend shares like Brickworks Limited (ASX: BKW).
