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Telstra stock forecast: Can TLS shares mount comeback despite declining sales, profits?

By Rob Griffin

Edited by Jekaterina Drozdovica

18:15, 26 October 2022

Telstra store sign. Telstra is the largest telecommunications and media company in Australia.
Can TLS shares mount comeback despite declining sales and profits?

Investors in Telstra (TLS), Australia’s telecommunications firm, are hoping its corporate overhaul will give the stock price a much-needed boost.

Senior executives at the Melbourne-based company are confident about future prospects, despite a challenging year that’s seen falling income and profit. They have highlighted the ongoing success of strategies to simplify operations, reduce costs, improve the customer experience, and grow the business.

But will these changes help lift the TLS stock price? Here we take a look at what factors are shaping the Telstra stock forecast , including the firm’s financial results, outline of its future plans, and reveal what analysts expect to happen.

What is Telstra?

Telstra is an Australian telecoms and technology company that offers a wide range of services to customers. 

According to the company’s data as of October 2022, it provides 18.8 million retail mobile services, 3.8 million retail fixed bundles and standalone data services, and 960,000 retail fixed standalone voice services.

Its history dates back to 1901 when the Postmaster-General’s Department was established to manage all domestic telephone, telegraph, and postal services. 

The company went public in 1997. Its share offer opened on 15 October 1997 and by the close of applications on 3 November the same year, 1.8 million Australians had applied for shares. 

Telstra’s shares were first traded on the Australian Securities Exchange (ASX) on 17 November 1997. They opened at $2.60 and reached a high of $2.75 before closing at $2.67, a premium of 37 per cent.

The company is also a member of the Australia 200 Index (AU200), the nation’s stock market consisting of the 200 largest companies, ranked by market capitalisation. Other prominent names on this list include mining giants BHP (BHP) and Rio Tinto (RIO), as well as Westpac (WBC),  the Australian banking and financial services company.

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Telstra stock price analysis

Our Telstra share price forecast starts with a look at what’s been happening to the stock over the past year – and it doesn’t make great reading for investors.

The TLS stock price has been relatively weak during 2022. In fact, it’s down 8% since the start of the year from AUD4.20 to AUD3.87 as the markets closed on 25 October.

Fortunately, the longer-term picture is better. Since Telstra’s flotation in late 1997, the stock is up 49%. It has also enjoyed a 10.4% uplift over the past five years.

Telstra stock price, 2017 - 2022

Latest earnings report

The recent share price fall can be partly attributed to disappointing full-year 2022 results, which saw total income down 4.7% at $22bn. 

It also said earnings before interest, tax, depreciation and amortisation (EBITDA) was down 5% to $7.3bn, while net profit came in at $1.8bn, representing a fall of 4.6%.

In a statement, Andy Penn, then chief executive, pointed out the declines reflected the costs of the nbn rollout, which is Australia’s national broadband network. He said:

“Those final financial impacts saw reported total income declines of around $700m in one off nbn receipts and $300m in nbn commercial works.”

Among the operational highlights, Penn noted that 150,000 net retail postpaid mobile services were added, while retail prepaid unique users were up 215,000.

However, its performance in fixed for consumer and small business customers had “been more challenged”, particularly due to being at the tail end of the nbn migration. The executive added:

“Notwithstanding the disappointing fixed SIO performance, we are confident of restoring financial momentum by leveraging the many value adding home broadband features Telstra offers.”

Increased dividend and T22 success

However, the company  increased its dividend for the first time in seven years, citing “strong momentum” in its underlying business and the successful completion of T22. Penn said:

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“The Board has resolved to pay a fully franked final dividend of 8.5 cents per share bringing the total dividend for the year to 16.5 cents per share… This includes an increase in the ordinary dividend from 10 to 13.5 cents per share and a 3 cents per share special dividend.”

The T22 strategy, which was first announced in June 2018, was a plan to simplify operations and product set, improve customer experience, and reduce the cost base. The executive added:

“Telstra is a very different company today and while of course there is always more to do, we are much better equipped to face the very exciting digital future ahead.”

T25 restructuring

The next stage of Telstra’s corporate overhaul is known as T25 – and the success, or otherwise, of this strategy is an influential part of any Telstra stock forecast. 

While T22 was the initial transformation process, T25 is the company’s strategy for growth, which it has broken down into four pillars:

  • Provide an exceptional customer experience you can count on

  • Provide leading network and technology solutions that deliver your future

  • Create sustained growth and value for our shareholders

  • Be the place you want to work

In addition, Telstra announced in November 2020 an internal restructuring that would lead to a number of subsidiaries being created under a new holding company.

In a statement updated in August 2022, it said the aim was to “increase the transparency” of infrastructure assets and improve management focus on infrastructure and customer businesses. 

It would also “create greater flexibility and optionality” to realise value from the Telstra Group’s fixed assets over time. 

New chief executive charts her path

Of course, a lot of the future success for Telstra will be dictated by the person at the helm and the recently installed chief executive is Vicki Brady.

Brady, who was previously chief financial officer, took over at the beginning of September, replacing Andy Penn, who’d held the position for more than seven years. 

In a statement, Telstra chairman John Mullen said Penn had left a “positive and enduring legacy” as a result of the transformation he’d led at the company. He wrote: 

“In recent years, not only has Andy ensured the successful delivery of our T22 commitments he has provided leadership at what has truly been an extraordinary time as we have navigated both as a company and a nation through the challenges of the pandemic.”

Mullen went on to say he was “thrilled” that Brady would be his replacement and pointed out she had played a “key leadership role” in the development of the T25 strategy. “She could not be more qualified to take over the reins to deliver on our T25 commitments,” he added.

Telstra stock forecast: Where will the price go next? 

So, what are the Telstra stock predictions of analysts? The stock was rated as a ‘moderate buy’, according to a list of eight analysts offering 12 month price targets in the last three months, compiled by TipRanks as of 26 October. 

The average price target was AUD$4.46 with a high forecast of AUD$5.25 and a low forecast of AUD$3.96. The average price target represented a 15.80% change from the last price of AU$3.87.

Ord Minnett and HSBC have both reiterated ‘buy’ positions over the past couple of weeks, while Goldman Sachs downgraded the stock to a ‘hold’ in early October 2022.

According to the TLS stock forecast of Wallet Investor at the time of writing, which uses algorithmic forecasts, the stock was “an acceptable long-term investment”. The site’s Telstra stock forecast 2022 suggested that TLS stock could rise 6.7% to AUD4.13 over the coming year to October 2023.

Its Telstra stock forecast 2025, meanwhile, put it up to AUD4.66 by October 2025, while the five year forecast had it hitting AUD$5.17 by October 2027. This would represent a 34% premium over its current AUD$3.87 level.

Brian Han, a director at Morningstar, had a fair value of AUD4.20 on the stock, which is 8.5% higher than the AUD$3.87 closing price on 25 October. He highlighted the corporate changes that had been taking place over the last few years, including the focus on improving the transparency of Telstra’s assets.

In his TLS stock forecast in late September 2022, Han acknowledged that “major progress” has already been made by the company, adding:

“The restructuring has been a key reason why shares in Telstra have been recovering toward our AUD 4.20 fair value estimate, notwithstanding the recent market-related retreat.”

Note that analysts’ or algorithm-based Telstra stock forecasts can be wrong and should not be used as a substitute for your own research. We encourage you to conduct your own due diligence, looking at the latest news, technical and fundamental analysis. Remember that past performance does not guarantee future returns, and never trade money you cannot afford to lose.

FAQs

Is Telstra a good stock to buy?

Whether TLS stock is a good investment for you will depend on your own investment objectives and the research you have carried out on the stock. Remember, it’s very important to form your own opinion of a company’s prospects and its likelihood of achieving analysts’ targets.

Will Telstra stock go up or down?

The average forecast from eight Wall Street analysts, compiled by TipRanks as of 26 October, was that the stock could rise to AUD$4.46 . However, it’s important to acknowledge they may be incorrect. You’ll need to carry out your own analysis on the stock and make your own mind up about its prospects.

Should I invest in Telstra stock?

This depends on your view of the company and the success of its corporate restructuring. Analysts have praised the progress it’s made, but you should draw your own conclusions on how Telstra is likely to perform over the coming years.

Markets in this article

AU200
Australia 200
7958.3 USD
9.8 +0.120%
BHP
BHP Group
55.71 USD
-0.47 -0.840%
RIOgb
Rio Tinto - GBP
49.135 USD
-1.045 -2.090%

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