Is the Telstra Corporation Ltd (ASX:TLS) share price a buy?

Will the Telstra Corporation Ltd (ASX:TLS) share price keep falling or rise in 2019?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Telstra Corporation Ltd (ASX: TLS) share price is down 45% over the past three years from $5.40 to $2.96, although it has paid a total of 84 cents per share in dividends over the last three financial years in some compensation for the falling share price.

Telstra is also a very popular share among SMSF and retail investors mainly because of the perception it's a "reliable" fully franked dividend payer. So let's take a look at the strengths and weaknesses of the telco considering today's share price.

Telstra's mobile phone services business remains a market leader with a reasonable competitive advantage in that it is widely regarded as having the best network. This means many Australians are happy to pay a little extra in return for the wide network coverage in regional Australia for example.

Demonstrating the point is that in FY 2018 the group added 342,000 retail customers to its mobile business, bringing total mobile customers to 17.9 million.

However, over the year mobile revenue only increased 0.4% to $10,145 million. This is because average revenue per customer (ARPU) is actually under pressure due to the cut price deals being offered by rivals such as Optus, Vodafone, TPG Telecom Ltd (ASX: TPM), or even Amaysim Australia Ltd (ASX: AYS).

Home internet

Telstra also added 88,000 domestic retail home broadband or internet services customers over the year, and while Telstra is adding subscribers the transition to the national broadband network from Telstra's copper network is still causing it and shareholders a lot of pain.

FY 2019 is also expected to be a "material year" in terms of the impact of the further migration to the NBN. This is a downside risk, but the upside is that Telstra is performing well in the battle for nbn market share. In total it added 770,000 nbn connections over the year, to have 1.946 million in total and an impressive 51% market share.

As a result of the loss of profits from the nbn transition Telstra has been forced to slash its dividend from 31 cents per share in FY 2017 to 22 cents per share in FY 2018.

It's this outcome that has sent the share price tumbling. Telstra has also seen its profits on products like home phones, global roaming and text messaging disappear thanks to disruption.

For investors then much depends on the competence of Telstra's management team to adapt to the fast-changing pace of technology to grow its own new revenue streams and spot beforehand which existing business segments may be vulnerable to disruption.

In FY 2019 the group is forecasting free cash flow of $3.1 billion to $3.6 billion, which compares to $4.9 billion in FY 2018. Whether the shares are now cheap or not then will depend on whether its management team has the competence to fight off competition and reshape, then turn around the business.

Motley Fool contributor Yulia Mosaleva owns shares of TPG Telecom Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended TPG Telecom 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.

More on Share Market News

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »

Magnifying glass on a rising interest rate graph.
Share Market News

Will the RBA finally cut interest rates next week?

Let's see what economists are saying about the central bank's meeting.

Read more »

A couple sits on a sofa, each clutching their heads in horror and disbelief, while looking at a laptop screen.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors endured a rough Friday to close the trading week today.

Read more »

a man wearing old fashioned aviator cap and goggles emerges from the top of a cannon pointed towards the sky. He is holding a phone and taking a selfie.
Broker Notes

7 ASX All Ords shares elevated to 'strong buy' status in October

The brokers turned bullish on these ASX companies last month.

Read more »

A businessman compares the growth trajectory of property versus shares.
Share Market News

How ASX shares vs. property performed in October

The national home value rose for the 21st consecutive month while the ASX 200 dipped.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

The worst 3 ASX 200 stocks to buy and hold in October unmasked

You would have done well to avoid these three ASX 200 stocks in October.

Read more »

A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently
52-Week Lows

Why is the Woolworths share price at its lowest point since 2020?

We haven't seen Woolies shares this low since COVID.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why AFT, Amcor, Corporate Travel, and Macquarie shares are falling today

These shares are ending the week in the red. But why?

Read more »