There are plenty of reasons to like Telstra Group Ltd (ASX: TLS) shares, which is why the broker UBS is calling the ASX telco share a buy.
UBS is positive about Telstra's "solid outlook" in the 2025 financial year. This outlook is primarily supported by mobile price rises (late August 2024 for postpaid users and late October 2024 for prepaid users) and the continued focus on the $350 million net fixed cost reduction target by FY25.
The broker currently has a price target of $4.40 on the business. As a price target is where the broker thinks the share price will be in 12 months from the time of the investment call, that suggests UBS believes the Telstra share price could rise by 9%.
UBS is forecasting that Telstra could increase prices by between 2.5% to 3% for postpaid mobiles annually after FY25 because "industry dynamics remain rational, particularly in light of Optus' 1Q25 results where postpaid prices grew $2 year over year to $43 per month, and EBIT margins have improved from 3.1% to 5.1%."
Let's examine the financial numbers that UBS is forecasting for Telstra over the next few financial years, keeping in mind those expected price increases and cost-control efforts.
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First, FY25
We're already halfway through the 2025 financial year, so we'll soon get to see the Telstra FY25 half-year result.
For the full-year result, UBS expects revenue to climb to $23.86 billion, which could help net profit after tax (NPAT) grow to $2.15 billion in FY25. With that profit, the broker expects Telstra to pay an annual dividend per share of 19 cents.
Second, FY26
Next financial year, UBS predicts that Telstra could experience ongoing growth.
The broker suggests the ASX telco share could see revenue climb to $24.4 billion and this could help net profit rise more than 14% to $2.47 billion. This could pay for an annual dividend per share of 21 cents.
Then, FY27
In the 2027 financial year, UBS expects ongoing success for Telstra's growth ambitions. Revenue growth is projected to enable the underlying operating profit (EBITDA) to grow at a compound annual growth rate (CAGR) of 5% between FY24 and FY27, and for the dividend to grow at a CAGR of 8% start from FY25 to FY27 to 22.5 cents per share.
Revenue is forecast to rise to $24.9 billion in FY27, and net profit is expected to hit $2.74 billion.
After that, FY28
For Telstra share owners, there could be yet another report full of positive growth numbers in the 2028 financial year.
In FY28, UBS expects Telstra to achieve revenue of $25.5 billion and net profit of $2.96 billion.
Finally, FY29
The final year of this projection is the 2029 financial year, which could be the best year of all. In FY29, the company may achieve a net profit margin of 12.3%, compared to 9% for FY25. It could be significantly more profitable towards the end of this decade.
UBS projects Telstra could generate $26.2 billion of revenue and $3.24 billion of net profit in FY29, which could enable the ASX telco share to pay a dividend per share of 27 cents. At the current Telstra share price, the company is trading at 14x FY29's estimated earnings with a grossed-up dividend yield of 9.5%, including franking credits.
