Could the Telstra Corporation Ltd (ASX: TLS) share price be a buying opportunity today?
The Telstra share price is currently hovering around $3. It is up since the start of November 2020, but it’s lower than it was in the middle of July and it’s down more than 20% compared to the price in January 2020.
What has happened in 2020?
Obviously COVID-19 happened. But different businesses were affected positively such as e-commerce businesses, whilst others have been hit hard like airlines and travel .
You’d think more people using data at home for entertainment and work would mean profit growth for Telstra, but that hasn’t been the case.
In FY20 Telstra reported that its total income decreased by 5.9% to $26.2 billion, reported EBITDA (EBITDA explained) was $8.9 billion. After adjusting for lease accounting changes to make the comparison on an apples to apples basis, EBITDA decreased by 0.3% to $8.4 billion. On a guidance basis, underlying EBITDA fell 9.7% to $7.4 billion. Underlying EBITDA is being affected by the shift to the NBN. Excluding the NBN headwind, underlying EBITDA – which Telstra believes this measure gives the best view of the long term business – grew by approximately $40 million.
Telstra said that its underlying EBITDA was hurt by COVID-19 by approximately $200 million.
Telstra’s net profit dropped by 14.4% to $1.8 billion.
There were some positives from the report. Around one third of the population is now covered by Telstra’s 5G network. For customers, it announced increased data allowances and saw 5G included on most plans.
The mobile division saw continued strength. It added 240,000 retail postpaid mobile services, including 154,000 from Belong. It also added 171,000 retail prepaid handheld unique users, 347,000 wholesale services and 652,000 to ‘Internet of Things’ services.
Despite the increased customer numbers, however, overall mobile revenue declined $461 million. Postpaid handheld average revenue per user (ARPU) declined 8.2%, or 6.8% excluding the impact of COVID-19 on international roaming revenue.
What to make of the Telstra share price
The trouble for Telstra is that its margin decline is unlikely to reverse any time soon. Users are used to getting the amount of data they get for the price they/we pay. Aside from winning over more users, I’m not sure what else Telstra can do in the short-term. 5G may be able to change things, if new services are needed. Will that be enough to bring profit growth back? I’m not sure.
According to numbers of Commsec, Telstra is valued at 22x FY21’s estimated earnings. That isn’t exactly cheap for a business where the profit is going backwards at the moment. There are other telecommunications businesses I’d rather buy like Over The Wire Holdings Ltd (ASX: OTW), MNF Group Ltd (ASX: MNF) or even Macquarie Telecom Group Ltd. (ASX: MAQ).
