Could it be time to buy shares of Telstra Corporation Ltd (ASX: TLS) at the current price?
What’s going on?
The Telstra share price has traded in a relatively narrow range over the last year. I said it’s narrow considering the ASX share market was crashing a year ago, plenty has happened in-between.
Compared to a year ago, Telstra shares are down around 10%. But, over the last six months, Telstra shares have gone up approximately 10%.
November 2020 was a strong month for the telco business. Reporting season was a bit of a mixed bag – Telstra shares have since dropped back from where it was in the middle of February 2021.
The first half of FY21 wasn’t great, with income down 10% and net profit falling 2.2% to $1.1 billion. If it weren’t for all of Telstra’s cost cutting then the profit number would look a lot worse.
Telstra’s CEO, Andy Penn, has set some ambitious goals over the next couple of years. He wants Telstra to grow its underlying EBITDA (EBITDA explained) by mid to high single digits in FY22. In FY23 Mr Penn wants Telstra’s underlying EBITDA to be between $7.5 billion to $8.5 billion.
In FY21 Telstra is expecting underlying EBITDA to be between $6.6 billion to $6.9 billion. That’s despite an in-year NBN headwind of approximately $700 million.
Is it a good time to buy Telstra at this share price?
Telstra is going through a long, difficult transition period because of the NBN. Its margins are lower and there’s more competition.
However, Telstra and investors alike seem to think that 5G could change everything for the telco. Not only could there be lots of new services offered, which need fast speeds, but 5G could also enable wireless broadband in homes – this would allow Telstra to compete with the NBN.
But I’m not totally convinced that 5G will fix everything for Telstra – there doesn’t seem to be much of a price increase for customers by being on 5G. Cost cutting will only get you so far.
Telstra does have a rollout advantage with 5G compared to its competition, but that won’t last forever. I hope Telstra can start growing its underlying EBITDA from next year, but I’m not sure how much compound growth it can generate.
Even with the fairly generous fully franked dividend yield of 5.1%, I don’t think Telstra shares are the best place to invest for capital growth or dividends.
