Australia Markets closed

Telstra share price falls 2% after FY19 result revealed

Tristan Harrison
telstra shares

The Telstra Corporation Ltd (ASX: TLS) share price finished the day down 2% in reaction to its FY19 result.

In my opinion the numbers weren’t pretty. Total income decreased by 3.6% to $27.8 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 21.7% to $8 billion and net profit after tax (NPAT) declined 39.6% to $2.1 billion.

Those are some shocking numbers from what’s meant to be a fairly stable blue chip business.

As I’m sure most readers know, it’s the NBN that’s to blame. Telstra said it had absorbed around $600 million of negative recurring EBITDA during the year. Without the NBN problems, the underlying EBITDA would only have decreased by around 4% according to management. In-fact, Telstra estimated that the NBN has hurt EBITDA by approximately $1.7 billion since FY16 and it’s only halfway through the recurring financial impact of the NBN changes. Oh dear.

I find it hard to get excited by a business that is predicting its profit is going to be hit more by hundreds of millions of dollars in the short-to-medium-term.

However, on the costs side of things Telstra is making a lot of progress. It has achieved $1.17 billion of cost reductions since FY16 and is on track for $2.5 billion of net cost reductions by FY22.

One of the examples that the company gave was 900,000 fewer truck rolls over the year, allowing Telstra to reduce its fleet vehicle size by 14%, and also reducing its property footprint by 8%.

It also seems like a smart move of Telstra to extract value from some of its non-core assets. It has agreed to sell three international data centres in Europe and Asia to global provide equity firm I-Squared Capital for approximately $160 million, if the transaction goes ahead.

Even after all this pain in FY19, FY20 is likely to see further revenue declines and EBITDA is going to be flat at best. I feel sorry for the people losing their jobs and Telstra’s return to growth will still take some time according to CEO Andy Penn.

There are only so many costs you can cut before the performance of the business is hurt, hopefully all of the things Telstra is doing will indeed improve efficiencies and help the bottom line, rather than damage it over the long-term.

Foolish takeaway

Telstra is trading at 21s FY19’s earnings, which certainly isn’t cheap for a company going backwards. 5G is critical for the future of Telstra’s earnings and shareholder returns. We still don’t know what the economics of 5G will look like – how will Telstra generate new revenue? I’m not interested in Telstra shares until we learn if and how Telstra will develop new earnings streams.

Instead, I would much rather buy shares of these quality defensive ASX stocks.

Top 3 Dividend Ideas For A Better Portfolio

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. Each of these three companies boasts fully franked yields and could be a great fit for your diversified portfolio. You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

More reading

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019