One of the biggest corporate events this year will be the highly anticipated Telstra Corporation Ltd (ASX: TLS) Investor Day on June 20.
This Investor Day event is being seen by many as a pivotal day for the telco giant where it is expected to discuss its growth initiatives and address the earnings gap that it faces. One broker has even tipped the company to announce a dividend cut at the event.
And with the meeting just one week away, analysts at Goldman Sachs have outlined five key points to focus on at the meeting.
The first is the business case and potential financial impact of 5G internet. According to the note, Goldman expects Telstra to discuss the impact that the arrival of 5G internet in FY 2020 will have on its struggling mobile segment. The mobile business is expected to see EBITDA decline in FY 2018 and FY 2019, but could return to growth in FY 2020 if 5G leads to improvements in mobile margins and average revenue per user (ARPU).
The second is for Telstra to provide greater disclosure on the composition of its mobile ARPU, especially after postpaid ARPU deteriorated recently despite minimum monthly commitments (MMC) increasing. Goldman estimates that Telstra's postpaid ARPU (ex MRO) of $65.35 is made up of: $59.30 MMC, $2.00 in excess data, $3.20 in international roaming, and $0.80 in other services.
The third thing to look out for is its cost reductions. Goldman estimates that Telstra is on course to exceed its $1.5 billion target for underlying fixed cost reduction. But it doesn't believe the company will stop there and expects increased productivity targets will be announced. It does, however, want the telco giant to provide more colour on where these reductions are coming from and where the incremental cost opportunity has come from. It also suspects further redundancies could be announced.
Fourth on the list of things to look out for is "aspirational" financial targets. While the company has given some longer term financial estimates to the market, it feels Telstra could provide aspirational financial targets (not guidance) across key product lines for the next three to five years.
And finally, the broker expects management to provide some clarity on its dividend. Although Goldman currently forecasts Telstra to maintain its 22 cents per share dividend over the next few years, it would require a reasonably high payout ratio. As a result, it concedes that a dividend cut for FY 2019 cannot be ruled out.
Should you invest?
Goldman Sachs has Telstra on its conviction buy list with a $3.90 price target. Although I agree with the broker and think that Telstra looks to be good value at this level compared to industry peers TPG Telecom Ltd (ASX: TPM) and Vocus Group Ltd (ASX: VOC), I wouldn't invest until everything has been revealed at its Investor Day event.
While I suspect a potential dividend cut has already been priced into its shares, if a cut is more severe than expected then it could send the Telstra share price even lower. As such, I think the prudent thing to do is to keep your powder dry until the meeting.
