Is the Telstra (ASX:TLS) share price the best blue-chip bet for 2022?

Are Telstra shares an opportunity for blue chip investors?

| More on:
Two male ASX investors and executives wearing dark coloured suits sit at a table holding their mobile phones discussing the highest trading ASX 200 shares today

Image source: Getty Images

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

Might the Telstra Corporation Ltd (ASX: TLS) share price be a leading blue chip opportunity in 2022?

Telstra shareholders have been suffering for a long time. Since the start of this century, the Telstra share price has fallen more than 50%. Over the last five years it has dropped 17%.

The company has seen its profit decline substantially over the last few years.

In FY17, it made net profit from continuing operations of $3.9 billion, with earnings per share (EPS) of 32.5 cents. In that year, it paid a total dividend of 31 cents per share.

Compare that to FY21. Net profit was $1.9 billion. EPS was 15.6 cents. The dividend was $0.16 per share. Those figures have roughly halved.

Telstra plans a return to growth

The telco is expecting a return to full year growth in FY22 after a sustained period of challenges due to the shift of broadband to the NBN, which is taking a substantial amount of the margin now, rather than Telstra.

But that transition has essentially finished.

In FY22, Telstra is now expecting total income to come in between $21.6 billion to $23.6 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be between $7 billion to $7.3 billion. Free cashflow after lease payments is expected to come between $3.5 billion to $3.9 billion.

The company is just finishing its T22 strategy, which looked to monetise some of its assets (like its towers), reduce costs and become more efficient. Telstra was able to launch a $1.35 billion share buyback after selling a stake in its InfraCo Towers business.

But it has already launched its T25 strategy, which could have an impact on the Telstra share price.

T25 targets

With this new strategy, Telstra is looking to extend its 5G coverage to 95% of the population, with expanded regional coverage of new 4G and 5G coverage.

The telco is looking to grow its Telstra Plus members to 6 million by FY25.

Income-seekers may be pleased to know that Telstra is looking to maximise its fully franked dividends for shareholders and look to grow the dividend over time.

Despite already finding $2.7 billion of costs to cut in the T22 strategy, it's looking to deliver another $500 million of costs reductions to FY25.

Those cost reductions will help Telstra aim for a compound annual growth rate (CAGR) of mid-single digit for underlying EBITDA and high-teens of underlying EPS to FY25.

Diversification

Telstra has made a couple of acquisitions in recent months that looks to diversify and grow its earnings.

One was the US$1.6 billion acquisition of Digicel in partnership with the Australian Government. Digicel is described as a leading provider of communication services across PNG, Fiji, Nauru, Samoa, Tonga and Vanuatu. This business generated EBITDA of US$233 million for the year to 31 March 2021, with a "strong" margin.

Digicel will become part of a fourth subsidiary of Telstra – Telstra International.

Telstra also has a vision for 'Telstra Health' to be a leading partner for the health and aged care sectors. It recently announced it was buying leading GP clinical and practice management software company MedicalDirector for an enterprise value of $350 million. Its software as a solution (SaaS) offering supports approximately 23,000 medical practitioners and is used to deliver more than 80 million consultations a year.

Is the Telstra share price good value?

Morgans thinks so. It rates Telstra as a buy, with a price target of $4.55. Another broker, Ord Minnett, rates Telstra shares as a buy, with a price target of $4.60. Each of these targets suggest an upside of around 15% over the next year, if the brokers end up being right.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Communication Shares

Delighted adult man, working on a company slogan, on his laptop.
Communication Shares

Macquarie initiates coverage of Superloop shares with outperform rating

The broker reckons Superloop has what it takes to soar.

Read more »

Communication Shares

Here's the earnings forecast out to 2029 for Telstra shares

Are further Telstra share price gains possible? Let’s consider the earnings outlook.

Read more »

A man surrounded by huge piles of paper looks through a magnifying glass at his computer screen.
Communication Shares

Why this fundie sees 'a potential turning point' for Seek shares

Blackwattle Investment Partners says Seek management appears to be refocused on shareholder returns.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Communication Shares

Up 100% in a year, can the Superloop share price continue to deliver solid returns?

Superloop continues to generate momentum as its customer base expands.

Read more »

Two male ASX investors and executives wearing dark coloured suits sit at a table holding their mobile phones discussing the highest trading ASX 200 shares today
Communication Shares

Is the Telstra share price a buy right now?

Telstra shares have steadily risen over the last few months. Are they still good value?

Read more »

A cute little kid in a suit pulls a shocked face as he talks on his smartphone.
Dividend Investing

Up 38% in a year, is it too late to buy Telstra shares for the dividends?

A leading expert gives his verdict on Telstra’s passive income appeal following the stock's 38% 12-month share price gains.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Why Macquarie forecasts this ASX All Ords media company is set to surge 19%

Up 42% in 2025, here’s why this ASX All Ords media stock could keep racing higher into 2026.

Read more »

A cute little kid in a suit pulls a shocked face as he talks on his smartphone.
Communication Shares

Where will Telstra shares be in 3 years?

How much business growth can Telstra shareholders look forward to?

Read more »