Is the Telstra Corporation Ltd (ASX: TLS) share price a buy after the telco reported its half-year result for the six months to 31 December 2019?
Telstra's numbers
The telco reported that its total income, its earnings before interest, tax, depreciation and amortisation (EBITDA) and its net profit after tax (NPAT) were in line with expectations.
Telstra's total income fell by 2.8% to $13.4 billion, its underlying EBITDA fell 6.6% to $3.9 billion, reported EBITDA was $4.8 billion and its net profit decreased by 6.4% to $1.2 billion.
However, some positive rays shone through the clouds in this report. Underlying EBITDA excluding the in-year NBN headwind grew by around $90 million, the first time this has grown since FY16. The in-year NBN headwind was $360 million – this is defined as the net negative recurring EBITDA impact on Telstra based on management's best estimates including the NBN corporate plan 2020. In other words, the non-NBN-exposed divisions of Telstra grew.
Telstra's T22 plan
One of the core pillars of Telstra's strategy to grow its profit is to simplify products, to reduce its costs and improve efficiencies.
This year the company will reach the half-way point of its T22 strategy. Underlying fixed costs were reduced by $422 million, or 12.1%. Telstra said that this brings the total underlying fixed cost reductions to around $1.6 billion since FY16.
Customers and 5G
During the half Telstra added 137,000 retail postpaid mobile services (with 91,000 on Belong), 135,000 retail prepaid mobile services and 173,000 pre and postpaid IoT wholesale services.
Telstra now has 5G coverage in areas in 32 cities, the target is 35 by the end of FY20. The company has sold over 100,000 5G-enabled mobile devices so far and more 5G devices are being released all the time.
Telstra dividend
Telstra is not quite the dividend share it used to be. But, its dividend was maintained with a total dividend of 8 cents per share being declared, with an ordinary dividend of 5 cents per share and a special dividend of 3 cents per share.
FY20 guidance
Telstra said that after excluding the expected in-year NBN headwind, which Telstra continues to expect to be in the range of around $600 million to $800 million, underlying EBTIDA is expected to grow by up to $500 million.
Is the Telstra share price a buy?
It is a good sign that other parts of the Telstra business are growing. But the NBN effect can't be ignored, it's a sizeable part of the Telstra business and it continues to hurt the telco. Plus, who knows what the new combined business of TPG Telecom Ltd (ASX: TPM) and Vodafone Australia will be like? It could be a tough competitor.
It's now trading at around 20x FY21's estimated earnings with profit likely to fall in FY21 and perhaps again in FY22. I'm not attracted to Telstra at this price. I'd only be interested if it seems Telstra's revenue can grow in the future combined with profit growth, perhaps due to 5G-related services.
