Why did the valuation of the nation’s biggest telco go backwards during the most communications-hungry event in history?

The answer in part lies with intense mobile and broadband competition resulting in more “all you can eat” deals than a pre-pandemic Las Vegas buffet.

The National Broadband Network (NBN) has also had the democratic effect of rendering Telstra a price-taking reseller just like everyone else.

Another reason is that Telstra’s valuation does not reflect the intrinsic worth of infrastructure, such as its mobile towers.

The telco this month took matters into its own hands by announcing the pending legal split of its business into three divisions: InfraCo Fixed (ducts, fibre, data centres and such), InfraCo Mobile (mobile towers) and ServeCo (innovations and customer service).

We’re sure the marketing department will come up with some snazzier names.

The move puts in train an expected “monetisation event”, which to the telco’s 1.27 million (mainly layperson) shareholders means flogging the towers for a lot of money.

Meanwhile, Australian Competition and Consumer Commission data shows that Telstra accounted for only 33.6% of NBN connections in the September quarter, compared with its overall historical share of 45.7%.

One reason for this is the connections are tilted to metro areas, where competition is fiercest.

There are signs mobile and internet pricing is becoming more rational, although there’s a question mark over whether Vodafone will emulate Telstra’s recent price increases.

On the short term, Telstra has reiterated its guidance of $6.5-7 billion of underlying earnings for the current year, compared with $7.4 billion previously. Management expects these earnings to return to growth in 2021-22, with targeted earnings of $7.5-8.5bn in 2022-23.

Famished yield seekers can lock in a 16 cents per share dividend fully franked, equating to a 5% yield.

Unlike over the last four years, hopefully Telstra will ring up capital growth for investors as well. 

Tim Boreham edits The New Criterion ([email protected])

 Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.