Telstra Share Price Jumps on FY21 Performance (ASX:TLS)

The Telstra Corp Ltd [ASX:TLS] share price climbed today on the release of its results for the year ended 30 June 2021.

TLS share price is currently trading at $3.95, up 3.1%.

ASX TLS - Telstra Share Price Chart

Source: TradingView.com

Looking at Telstra stock’s 12-month performance, the TLS share price gained 17%. However, this underperformed the ASX 200 by 6%.

Overview of Telstra’s FY21 performance

 Investors are sending Telstra shares higher today on the back of the telco hitting some important targets in FY21.

Company Presentation

Source: Company presentation

So, let’s dive into the FY21 highlights.

Telstra’s total income fell 11.6% to $23.1 billion, down from $26.1 billion in 2020.

Reported earnings before interest, tax, depreciation, and amortisation (EBITDA) fell 14.2% to $7.6 billion.

Underlying EBITDA was down 9.7% to $6.7 billion versus the guidance of $6.6 billion to $6.9 billion.

Despite the income and EBITDA falls, Telstra saw net profit after tax rise 3.4% to $1.9 billion.

Furthermore, net profit after tax (NPAT) climbed 3.4% to $1.9 billion from $1.83 billion in 2020.

And Telstra’s free cash flow grew 11.6% to $3.8 billion.

For the year, Telstra reduced its total operating expenses by 10.2%. This included a $490 million — or 8.1% — decline in underlying fixed costs.

This takes the cumulative cost reductions to $2.3 billion since FY16.

On the dividends front, TLS reported a fully franked final dividend of 8 cents per share, bringing the full-year dividend to 16 cents per share.

A major driver of Telstra’s performance was its mobile business.

In the second half, mobile service revenue grew 3.7% compared to the prior year.

Telstra believes that FY21 was a ‘significant turning point’ in terms of financial performance.

Every year for the last four years, the company had to face severe challenges regarding the financial headwinds associated with the transfer of a material part of the business to the NBN.

This means that the company started each of the last four years with its EBITDA going backwards by up to $800 million.

Telstra CEO Andrew Penn was impressed by the FY21 results:

2021 was a really significant year for Telstra. We delivered results in line with guidance and we are seeing the focus and discipline on T22 pay off.

 It represents a turning point in our financial trajectory.

 Our second half underlying EBITDA was up on the first half, and our guidance for FY22 underlying EBITDA is $7.0-7.3 billion, which represents mid to high single digit growth.

 FY21 NPAT and EPS were up 3.4 per cent and 2 per cent respectively.

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 Telstra announces share buybacks of $1.35 billion

 Telstra announced that it would return approximately 50%, or up to $1.35 billion, of net proceeds from its InfraCo Towers transactions to shareholders during FY22 via an on-market share buyback.

Penn believed that the transaction reinforced the view that Telstra’s infrastructure assets could deliver additional value for shareholders.

The on-market share buyback will take place in the ordinary course of trading over 12 months.

The exact amount and timing of the on-market buyback will be dependent on market conditions.

Lastly, the on-market buyback will be within the ‘10/12’ limit permitted under the Corporations Act.

Outlook for the Telstra share price

 The results of Telstra FY21 performance were indeed a turning point for the company.

For instance, while investors may have been disappointed by the fall in total income and reported EBITDA, they were likely buoyed by Telstra posting a first net profit increase in five years.

The market’s reaction may indicate investors are encouraged Telstra’s T22 strategy is working.

Investors may also be encouraged by the prospect of Telstra paying higher dividends in fiscal 2023 on the back of improved performance.

Telstra’s FY21 dividend stood at 16 cents per share, the same level recorded in FY20.

But that could rise if Telstra can meet its stated guidance.

Telstra’s 2022 forecast is total income between $21.6 billion and $23.6 billion, underlying EBITDA between $7 billion and $7.3 billion, capital expenditure between $2.8 billion and $3 billion and free cash flow of $3.5 billion and $3.9 billion.

Since we are talking about dividends, it is worth mentioning that dividend stocks like Telstra can offer shareholders a steady yield.

So if you are looking into dividend stocks with potential for healthy yields, then I suggest checking out our free dividend report for 2021 and beyond.

Regards,

 Lachlann Tierney,

 For Rum Rebellion

PS: The Rum Rebellion is a fantastic place to start your investment journey. We talk about the big trends driving the Australian Economy. Learn all about it here.


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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