TLS share price in focus
Telstra was founded in 1975 and is Australia’s largest telecommunications company by market share providing over 22.5 million retail mobile accounts in 2023.
Telstra is responsible for building and operating telecommunication networks and has a range of businesses including fixed broadband, mobile, data and IP, and digital media. The company also has a presence in over 20 countries outside of Australia where it provides services to governments and businesses.
The advantage that Telstra has over competitors lies in its reach and scale, providing coverage to 99.6% of the Australian population and 5G services to over 85%.
Since we consider Telstra Group Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, Telstra Group Ltd had an ROIC of 10.20% and revenue has compounded at 2.1% in recent years. Anything over 10% ROIC is pretty strong for a mature-style business, since its cost of capital is likely below that level, so Telstra Group Ltd crosses this hurdle.
REA shares
Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority-owned by News Corp. In Australia, it’s best known for its Realestate.com.au platform.
REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. While the business has diversified globally, Australian operations still account for the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.
The competitive advantge that REA has is the same as any other established platform: network effects and economies of scale. In other words, Domain (the #2 player) is meaningfully behind REA in users and views, which means REA can continue to control pricing and market dynamics. REA also benefits from owning assets across all parts of real estate, including listing, advertising, mortgage broking, and house sharing.
TLS share price valuation
One way to have a ‘speedy read’ of where the TLS share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can fluctuate year-to-year or between payments. Currently, Telstra Group Ltd shares have a dividend yield of around 4.55%, compared to its 5-year average of 4.50%. Put simply, TLS shares are trading above their historical average dividend yield.
Since REA is more of a growth company than an established blue chip, a price-sales ratio might be a more appropriate assessment.The REA share price currently trades at a price-sales ratio of 15.71x, which compares to its 5-year long-term average of 16.25x. So, REA shares are trading below their historical average. However, a simple multiple like this should only be the start of your research. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Just remember there are many different ways to value a share, like Rea Group Ltd.
