Criterion: Telstra rings up profit growth, but it may be time to look for better value elsewhere

News.com.au

3 days ago

Telstra's full year earnings soared 31%, but the nation's leading telco lacks the 'wow' factor
Smaller rivals arguably have better growth prospects
Tua's proposed $1.66 billion takeover of a Singapore rival will turbocharge its growth
Telstra's (ASX:TLS) internal repair efforts are cracking along at a pace that would even leave self-help gurus such as Dale Carnegie and Stephen Covey in the dust.
While the telco stalwart's full-year revenue edged up less than one per cent, earnings bounced 31%.
Measures such as paring thousands of staff aside, Telco has been aided by a rare sector-wide outbreak of rational mobile plan pricing.
Still, Thursday's result left investors nonplussed, even though they met market expectations. One concern is that customer growth in mobiles – Telstra's most important division – slowed in the second half.
Telstra has a commanding 40% share of the sector. But overall growth looks elusive, as evidenced by the board's decision to launch a $1 billion share buyback.
While Telstra will grab the headlines courtesy of its 1.14 million, yield-hungry shareholders, it's not the only telco stock to watch as the reporting season unfolded.
Arguably there's better value elsewhere, especially given Telstra shares have gained 25% over the last year.
Tuas can play at the M&A game
How about a Singapore Fling instead?
On Tuesday, Tuas (ASX:TUA) stole Telstra's limelight with a surprise S$1.4 billion ($1.66 billion) buyout of Singaporean rival M1.
The proposed purchase shapes as transformative the $2.6 billion market cap Tuas, funded and led by TPG's creator, David Teoh.
How much of a game changer for the owner of the Lion City's Simba Telecom?
Citi models combined revenue of S$984 million in the current year, compared with S$178 million for the stand-alone Tua.
Earnings before interest, tax depreciation and amortization (ebitda) soars to S$275 million, from S$79 million on a stand-alone basis.
Still the consumers' Buddy
Aussie Broadband (ASX:ABB) is expected to ring up some rosy numbers when it reports later this month. On the back of market share gains.
On consensus numbers, Aussie should report revenue of $1.187 billion, 17% higher than previously.
The telco's underlying earnings are expected to be $137 million, 13% higher.
While Aussie lifted prices across its own brand, left its low-cost Buddy Telco's rates pricing unchanged.
Citi says: 'Aussie Broadband's value proposition, solid user experience and superior customer experience continue to be differentiating factors compared to both incumbents and most of the challengers'.
Super profits for Superloop
The market expects internet provider Superloop's (ASX:SLC) full-year revenue to come in at $550 million, 33% better.
The company in late June upgraded its guidance underlying ebitda at or above $91 million, 67% higher year on year. As with Telstra, the company's doing more bottom line with not so much top line.
Citi says Superloop has 'set the tone for the rest of the industry' in terms of pushing through National Broadband Network (NBN) price increases.
As part of a six-year a six-year wholesale agreement, Origin Energy is migrating its NBN customers to Superloop.
Superloop's results next Wednesday should shed light on the pace of this transition.
TPG has cash to spare
Most of the intrigue around TPG Telecom (ASX:TPG) is what the owner of Vodafone Australia will do with the $5.3 billion of proceeds from the sale of its fixed-asset business to Vocus.
S&P Global Ratings says TPG's capital needs are tapering because of an end to 5G investment and 'initiatives such as IT modernisation and business simplification that reduce fixed costs.'
Once again, TPG should benefit from mobile price rises, but at the risk of higher churn and promotional costs.
TPG has guided to flat ebitda of around $1.66 billion.
Dipping into data centres
Macquarie Technology Group (ASX:MAQ) is mentioned as an emerging force in the data centre game, having acquired land at Sydney's Macquarie Park to bolster its capacity threefold.
But in the December half Macquarie still derived 31% of revenue ($56 million) and 22% of ebitda ($12.3 million) from its traditional telco business.
Morgan Stanley tips total revenue of $382 million for the 2024-25 year, up 5% with ebitda edging up 4% to $113 million.
Powered by data centre (and cloud) growth, turnover should climb to $419 million in the current year, up 10%. Ebitda should rise 11.5% to $126 million.
Macquarie has been an outlier share price wise, falling 22% over the past year. Should the data centre sector wobble, the telco stuff is a nice hedge.