Subscriber Surge

Telstra posted total revenue of $28.645bn in FY18, in line with Ord Minnett and consensus forecasts, while operating earnings of $10.125bn were in line with our estimate but ahead of market expectations. A fully franked final dividend of 11.0cps was declared, in line with our estimate, taking the full-year dividend payout to 22.0cps.


For FY19, Telstra guided to revenue of $26.5–28.4bn, down $100m from prior guidance; operating earnings of $8.8–9.5bn, up $100m from prior guidance; capital expenditure of $3.9–4.4bn, unchanged from previously; and a new forecast for free cash flow of $3.1–3.6bn.


Net post-paid subscriber additions of 174,000 were the best in five years, but we were particularly encouraged by better margins in both the mobile and fixed-line businesses.


Management did not provide guidance on FY19 dividends, but we conservatively estimate the company will pay an 18.0cps dividend this fiscal year, based on our current EPS estimate of 21.0c. The dividend payout would comprise 9cps ordinary dividend and a 9cps special dividend. However, we estimate Telstra could generate EPS of 22.0c if results come in at the high end of its current guidance range for operating earnings, which could potentially sustain an annual dividend payout of 22.0cps.


Furthermore, with a larger than expected contribution to operating earnings from InfraCo, our sum-of-the-parts valuation has increased by 7%. We have also increased our FY19 forecast for net post-paid subscriber additions to 200,000, and we estimate FY19 revenue of $27.7bn and operating earnings of $9.3bn.


We reiterate our Accumulate recommendation on Telstra and have raised our target price to $3.50 from $3.30.

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