Telstra Corporation Ltd (ASX: TLS) is planning for other industries to help the telco continue its growth for the longer-term.
The company has focused on telecommunications since it started. It's the market leader in Australia.
But the company sees opportunities in other sectors.
Telstra says that its ambition is simple, to grow its health and energy businesses profitably and to scale. Management are very excited by these opportunities and are convinced on their strategic direction. It's focused on the need to increase their economic significance to the value of Telstra. It's an important part of the new T25 strategy.
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Telstra Health
This division is called Telstra Health. Its vision is to improve lives through digitally-enabled care for the community.
It wants to accelerate the digitalisation of health and aged care providers. Telstra wishes to expand its business into international healthcare markets. The company also wants to combine its capabilities to support connected health platforms.
Customers includes public health systems in Hong Kong, Canada, the Middle East and Australia, state and territory governments, public and private hospital groups, aboriginal health services, pharmacies, general medical practices and so on.
By FY25, the hope is for Telstra Health to be earning more than $500 million of revenue in FY25. More than 80% of its revenue is recurring. That could mean it has a growing influence on the Telstra share price.
A few months ago, it announced the acquisition of GP clinical and practice management software company MedicalDirector for $350 million. MedicalDirector has been expanding in the UK in recent years, but Australia is the main place of activity (for now).
MedicalDirector provides software as a service (SaaS) in areas like electronic health records, patient and practice management, billing, scheduling, care co-ordination, medicines information and clinical content. At the time of the announcement, it supported approximately 23,000 medical practitioners and used to deliver more than 80 million consultants a year.
Energy
With energy, the company wants to launch a sustainable, simple and integrated energy proposition, scaling it through Telstra's channels and helping families save money and emissions.
By FY25, it wants to be a top five energy retailer, with more than 0.5 million customers and enable renewable energy equivalent to 100% of its consumption.
It has a relationship with 5.4 million Australian households and around 0.9 million small and medium businesses. The goal is to capture some of the 1.7 million households that change providers each year – a high proportion of these are already with Telstra. Trials will be done to confirm Telstra's cost-to-acquire advantage.
It will ramp up marketing from FY23, including to non-Telstra customers, and leverage Telstra Plus with exclusive offers.
Is the Telstra share price good value?
According to reporting by the Australian Financial Review, analysts believe that Telstra Health is the main opportunity.
It was reported that JPMorgan analyst Mark Busuttil said Telstra Health could generate $137 million of earnings before interest, tax, depreciation and amortisation (EBITDA) by FY25 if it generated healthy margins.
Telstra is currently rated as a buy by the broker Ord Minnett, with a price target of $4.60.
The broker notes that Telstra's is growing its telco market position in non-metropolitan locations. It also recently spent another $616 million on more spectrum. It has spent $11 billion over the seven years to the end of FY22.
Ord Minnett thinks the Telstra share price is valued at 24x FY23's estimated earnings with an expected grossed-up dividend yield of 5.5%.
