We have updated our model for Telstra to incorporate the guidance update from the company following the release of the NBN FY20 corporate plan. We maintain our Accumulate rating with a $4.25 target price.
As a result of the reduction in the total number of premises to be connected during FY20 from 2.0m in the FY19 plan to 1.5m, the NBN now forecasts subscriber payments of $2.3bn in FY20, versus $2.6bn previously. Accordingly, Telstra has lowered its FY20 revenue guidance by $400m (at the mid-point) and one-off NBN payments by $300m, with operating earnings (EBITDA) rising $100m.
We note the key implications of the changes in the plan as follows:
A delay in subscriber payments from FY20 to FY21 due to delays in the roll-out of connections;
An increase in capital expenditure for FY20–22 to $7.4bn, up $1.1bn on the FY19 plan, due to the higher estimated cost per premises;
A delay in revenue due to roll-out delays, and a new wholesale pricing discount;
An increase in operating expenses to $2.9bn from $2.6bn previously due to higher other operating costs; and
NBN Co will no longer disclose the overall blended average revenue per user (ARPU) metric in future, saying instead that it expects a long-term residential ARPU of $49, versus overall ARPU of $51 previously.
We have lowered our one-off NBN payments forecast by $300m to $1.5bn in FY20 (versus new guidance of $1.3–1.7bn), resulting in a corresponding decrease in revenue to $26.6bn (new guidance $25.3–27.3bn). We have increased our FY20 recurring core EBITDA estimate to $7.7bn (new guidance $7.4–7.9bn). We now forecast FY20 EPS of 21.2c, down from 22.3c previously, and FY21 EPS of 19.5c, up from 17.9c previously. There is no change to our dividend forecast of 16cps for FY20.