The Telstra Corporation Ltd (ASX: TLS) share price has been rising after the telco reported its FY21 result this week. Does that mean the worst is over?
Over the last six months the Telstra share price has gone up by 20%.
Investors have had a lot to look at in recent weeks.
Telstra’s FY21 result
On a reported basis, total income fell by 11.6% over the year to $23.1 billion. But net profit after tax increased by 3.4% to $1.9 billion.
Reported EBITDA (EBITDA explained) fell 14.2% to $7.6 billion, whilst underlying EBITDA decreased 9.7% to $6.7 billion.
Underlying EBITDA included an NBN headwind of around $650 million in FY21, with a $380 million financial impact from COVID. Excluding the NBN headwind, underlying EBITDA fell $70 million
Asset sale and buyback
Telstra announced how large its shareholder returns were going to be after the sale of almost half of its InfraCo Towers business.
This could be, or has been, an important boost for the Telstra share price.
The telco had already told the market about the asset sale, but investors learned about the size of the buyback, being $1.35 billion.
This will help equity and per-share ratios like return on equity, the dividend payout ratio and earnings per share (EPS).
Is the worst over for the Telstra share price?
It may well be.
Telsfra is predicting growth in FY22 for its underlying EBITDA. Underlying EBITDA is expected to come in a range between $7 billion to $7.3 billion.
Telstra is also expecting to generate free cashflow after lease payments of between $3.5 billion to $3.9 billion.
I’m particularly pleased to see that Telstra is focused on growing its business away from the core mobile and broadband business.
Telstra Health continues to grow and there is good potential for some of Telstra’s other investments (chosen by Telstra Ventures) to continue to add value to the overall business.
As the adoption of 5G by the public continues to grow, Telstra may be able to grow profit by switching households over to 5G wireless broadband, which would significantly increase the profit margin compared to a household on the NBN.
At the current Telstra share price it offers a fully franked dividend yield of 4%.
Telstra looks expensive for how much profit growth it’s likely to achieve on an earnings basis, though on a free cashflow basis it’s only at around 13 times free cashflow. It could be an interesting ASX blue chip to keep an eye on now.
