Telstra Group (TLS) – Keeping the faith

Telstra Group is the largest telecommunications carrier in Australia. The company was previously government owned from 1901 before being listed on the ASX in November 1997. Telstra is based in Melbourne.

Telstra hosted an investor day where the telecommunications carrier laid out its broad outlook for earnings growth, capital management and dividends over the next five years, albeit without providing formal quantitative guidance. Nevertheless, Ord Minnett came away with greater faith in the company’s strategy and prospects, and we have drawn the following conclusions:

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- Operating earnings (EBITDA) growth should run at circa $300 million per annum, equating to a compound annual growth rate (CAGR) of 8% out to FY30. Incorporating share buybacks, this would also imply a CAGR of 8% for EPS;

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- Capital management – we estimate share buybacks in the range of $5–6 billion over the five years to FY30, even allowing for dividends, capital expenditure and spectrum/NBN charges; and

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- The company’s dividend growth profile is well supported, although franking credits may become constrained later in the 2025–30 period.

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Post the investor day, we left our EPS forecasts unchanged, noting we sit around 4–6% below the broader market’s expectations for FY26 and FY27. We raise our price target to $5.00 from $4.50 to account for higher multiples in our sum-of-the-parts (SOTP) valuation of Telstra but trim our recommendation to Accumulate from Buy on valuation grounds given the stock’s circa 13% gain in the past two months.

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