Buybacks, Dividends Define Telstra’s Future

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Telstra is guiding to subdued mobile growth in FY26 as the cost of living bites. Earnings growth relies on cost cutting and satellite development.

-Telstra’s FY25 in line, FY26 prognosis subdued
-Cost of living driving customers to cheaper options
-Major staff reductions to drive cost-outs
-Satellite service critical to maintaining dominance

By Greg Peel

Telstra Group ((TLS)) reported underlying FY25 earnings of $8.6bn, up 5% year on year, in line with consensus. The 9.5cps dividend was also as expected. A $1bn share buyback was announced.

Telstra’s mobile result was soft in a softer market, analysts agree, with Postpaid in particular affected by several one-off drivers. On an underlying basis, Postpaid net adds were 106k, implying churn of 11.8%. With an additional two months of price rises ahead, mobile services revenue has tailwinds in FY26, Macquarie suggests.

Prepaid net adds were softer at -223k on an underlying basis, driven by the significant Prepaid price rises in FY25. Macquarie is mindful of the broader market-wide mix-shift to Prepaid and MVNO post-covid, but rational MNO pricing is a positive and MVNO price rises are starting to come through, with ALDI a key example.

Glossary time…MNO = mobile network operator, of which Telstra is one, along with Optus and Vodafone. MVNO = mobile virtual network operator; a mobile provider that leases phone and data services from network providers, rather than building and supplying the networks themselves, thus able to offer cheaper prices. And yes, ALDI is the supermarket chain, now also an MVNO.

Cost of Living

Mobile delivered 61% of group earnings in the second half FY25 and its momentum has slowed. In FY25, Mobile revenue lifted 2.7% year on year (4.5% in FY24) while underlying earnings lifted 4.7% (9.2% in FY24). Post-paid mobile subscribers declined -0.6% or -104k. However, 161k post-paid subs were either reclassified or removed due to the closure of legacy systems and Telstra’s 3G network. If we add 161k to second half subs, Morgans notes, this implies 1.2% year on year growth in post-paid subscribers.

Recent updates have seen weaker postpaid service in operation (SIO) growth relative to expectations for all carriers, Jarden points out. Conversely, prepaid (TPG Telecom ((TPG))) and Wholesale (Telstra) have both seen strong growth, suggesting “spin-down” (to cheaper options) remains persistent.

At the industry level, the share of prepaid SIOs including wholesale (MVNO) has increased from 34% as at December 2021 to 40% as at June 2025. The last four halves have been soft in postpaid, with only 154k services added at the industry level, versus 1,249k net new prepaid/wholesale services.

In Jarden’s view, this is strong evidence that as cost-of-living pressures have built up, consumers have been switching to cheaper prepaid/wholesale plans.

AI Impact Upon Us

Telstra has set some ambitious targets for FY30, Ord Minnett notes. Around $10bn in operating earnings, more than $20bn of balance sheet headroom, some of which will be used to fund capital management initiatives, a compound annual growth rate (CAGR) in the mid single-digits for cash earnings, increased dividends, and return on invested capital of at least 10%. The telco is on schedule to hit them, in Ord Minnett’s view.

Assuming mobile earnings growth in the mid single-digits and a broadly neutral contribution from its other divisions, further cost savings will be the key to getting there.

Despite mobile weakness relative to expectations, Telstra’s cost-out progress continues. Macquarie estimates the 550 full-time equivalent positions reduced in May will provide more than $70m of opex tailwinds in FY26, with an additional $380m of cost-out from the sale of 75% of service provider Versent to Infosys in FY26.

The cost savings required will primarily come from significant cuts in staff numbers –-Ord Minnett estimates circa -20% of current headcount of 31,000 full-time equivalent employees will be necessary-– as AI developments come to the fore and reduce the need for human involvement in many processes and transactions.

Telstra’s peers in the UK and US have already flagged reductions of similar or larger scale to their own workforces.

That’s -6200 employees made redundant by bots. Be warned.

Reach for the Stars

Mobile is the largest part of Morgan Stanley’s Telstra valuation and the key driver of shareholder value, plus it supports the ability to pay a rising dividend. The valuation is justified for the leading Mobile network, Morgan Stanley believes, a clear number one in post-paid subscribers (50% share); Mobile average revenue per user which is $10-20/pm premium to peers; and 50% earnings margins.

But to keep this premium valuation, it is essential Telstra maintains clear leadership, which is why what happens with upcoming new satellite services is critical. In Morgan Stanley’s view, if Telstra can launch and build a similarly dominant position in satellite, it will entrench its leadership in Mobile connectivity and underpin continuing high returns.

On the other hand, failure to execute, or if a competitor takes satellite leadership, then Morgan Stanley envisages the shares will be de-rated.

Based on industry discussions and channel checks, Morgan Stanley considers the following factors as important and in Telstra’s favour:

-Largest mobile spectrum holdings in the right bands. Which are necessary to augment the low earth orbit (LEO) satellite reach to mobile services

-Existing relationship with largest LEO satellite operator – Elon Musk’s Starlink

-Largest Mobile and Broadband customer base in Australia

-Largest fibre network and digital infrastructure assets in Australia

-Strong balance sheet with capacity to invest additional funds in further infrastructure if necessary.

One issue is that Morgan Stanley does not believe Telstra has an exclusive partnership with Starlink. It is not unfathomable that one of Telstra’s main competitors secures a superior deal with Starlink (or another LEO operator), and leverages that to disrupt Telstra’s current leading market position in Mobile overall.

Fair Value?

Of Telstra’s balance sheet headroom, Ord Minnett estimates at least circa $5bn will be available for capital management in the years out to FY30. Telstra’s dividend franking ability will likely soon be constrained, and consequently the company has indicated it will prefer share buybacks over special dividends.

Ord Minnett maintains its Accumulate recommendation.

Macquarie is wary of a subdued mobile market, and mix-shift to MVNO and Prepaid, but is looking through the one-off impacts in FY25. On rational MNO pricing and strong cost-out tailwinds, plus intercity fibre network earnings, Macquarie gives Telstra credit for a mid single-digit cash earnings CAGR and maintains Outperform.

Morgan Stanley retains its Overweight rating, noting Telstra is a quality, defensive stock. FY25’s performance was in-line, and FY26 has been tweaked lower, but supportive of the broker’s positive thesis is Mobile and InfraCo growth driving surplus free cash flow, lifting dividends.

Morgans sees Telstra as “expensive” relative to fundamental value but acknowledges the telco’s defensive earnings stream, reasonable earnings certainty and management targets to “grow cash earnings by mid-single digit CAGR to FY30” appeal to some.

Morgans sticks with Hold.

UBS similarly retains Neutral, as mobile growth is likely to be subdued into the first half and could lead to minor FY26 consensus downgrades. Telstra is trading in line with UBS’ fair value estimate and enterprise value to earnings of 8x, in line with its five-year average.

Bell Potter has increased the multiple it applies in its PE ratio valuation from 23x to 24x and also the multiple applied to the Mobile business in the sum-of-the-parts from 7.5x to 8x. The net result is a 2% increase which is a modest discount to the share price, so Bell Potter maintains a Hold recommendation.

That leaves a split of three Buy or equivalent and three Hold ratings among the six brokers monitored daily by FNArena covering Telstra. The consensus target price has negligibly ticked up to $4.87 from $4.86.

Wholesale pricing remains key to both growing earnings and limiting spin-down from postpaid, Jarden suggests. At the market level, SIO growth has been subdued, with just 196k total mobile SIOs added in the six months to June.

Despite the softer outlook, Jarden remains buoyed by management’s ongoing efforts to simplify the portfolio (Versent proposed sale and the international review) and return excess capital to shareholders ($1bn additional buyback).

Even so, Jarden lowers its rating to Neutral from Overweight, and its target to $4.80 from $4.90.

Updated consensus forecasts, derived from the six daily monitored brokers, anticipate dividend increases at a slightly slower pace than earnings per share in the years ahead. Annual payouts to shareholders are projected to increase to 20c in FY26 and to 21c in FY26.

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