Australia | May 30 2025
Telstra Group's strategy day outlined a vision for FY30 and beyond leading to some upbeat commentary by brokers.
-Telstra Group outlines strategic vision for FY30 and beyond
-Opportunities in enhancing network monetisation
-Leveraging AI to drive efficiency, other cost-outs
-Management is considering partially-franked payouts (and buy-backs)
By Mark Woodruff
One long-standing criticism of telecommunications companies is their limited success in monetising rapid data growth, despite serving as critical providers of digital infrastructure and handling rapidly growing data volumes. In contrast, over-the-top players have captured much of the associated value.
Against this backdrop, broker Morgans found it encouraging to learn at Telstra Group's ((TLS)) investor day management at Australia's largest telco is actively exploring strategies to better prioritise and monetise the value created by the company's vast network.
Network virtualisation and automation offer potential for premium pricing, notes the broker, through capabilities such as lower latency, guaranteed bandwidth, and other forms of traffic prioritisation.
As detailed in Tuesday's launch of the Connected Future 30 strategy, Telstra intends to double down on connectivity and pursue bold innovation at the core of its operations, with a goal to rank among the top 25% of global enterprises in artificial intelligence (AI) maturity by FY30.
Regardless of AI's immediate success, multiple areas of cost-out were identified by management.
As technology and connectivity transform once again, Telstra sees both an inflexion point and a "massive opportunity".
New devices, use cases, and greater digital activity will drive demand, explained management, and the connectivity provided to customers requires greater sophistication and flexibility.
In good news for shareholders, CFO Michael Ackland stated the group is targeting an improvement in underlying return on invested capital (ROIC) to 10% by FY30 from around 8% currently, as well as a sustainable and growing dividend.
With over $20bn in financial capacity through to FY30, Goldman Sachs estimates management could support annual dividend growth of 1c per share and fund $7-8bn in buybacks or special dividends, potentially further bolstered by additional asset sales.
Telstra expects a mid-single-digit cash EPS compound annual growth rate (CAGR) to FY30, including multiple cost-out options. Certainly, such an improving EPS profile and strong cash generation drives scope for growing dividends and/or share buybacks, notes Macquarie.
In Ord Minnett's view, the mobile and InfraCo businesses, aided by cost savings and AI integration, will provide the impetus for an 8% EPS CAGR.
The analysts at Bell Potter had been forecasting a CAGR of 2.9% to FY30 but now raise this to 4.4% largely due to increases in Mobile revenue and margin forecasts.
Macquarie has raised its dividend forecasts for FY25-28 by 5%, 16%, 21%, and 29%, respectively, to 19.95cps, 22.04cps, 23.06cps, and 24.6cps.
Raising the potential for partially franked payouts, Ord Minnett cautions franking credits may become constrained later in the 2025-30 period. More positively, Jarden suggests by enabling partially franked dividends, management has removed key near-term dividend limitations.
Management commented the telco may "consider partially franked dividends if growing fully-franked dividends is not possible".
Network as a Product
By FY30, Telstra aims to transform its connectivity platform, targeting a future where the majority of its connectivity revenue is driven by its Network as a Product (NaaP) strategy. This approach involves disaggregating the core functions of the network and delivering them as differentiated, productised offerings tailored to customer needs.
If successfully executed, Jarden believes the NaaP model could significantly accelerate earnings growth by unlocking new revenue streams across key market segments.
Macquarie agrees investment in digital infrastructure and enhanced network differentiation should support higher average revenue per user (ARPU), driven by a favourable shift in product mix and the introduction of value-based pricing.
Overall, the investor day supported Morgan Stanley's positive view, confirming strong organic growth in Mobiles and InfraCo and an ongoing focus on returning capital to investors.
Targets and guidance
For the Digital Infrastructure segment, Telstra is aiming to grow sustained cash earnings (EBIT) out to FY30, alongside a mid-teen internal rate of return (IRR) on strategic investments and partnerships.
Positive operating leverage is targeted, with underlying income growing faster than costs and business-as-usual (BAU) capex each year to FY30.
Management reaffirmed FY25 guidance and expects to be at the top end of both free cashflow and BAU capex guidance.
Share price outperformance
Adding to share price momentum, Telstra recently announced a pay monthly price rise of $3-5/month from July 2025 (the highest price rise since 2022), suggesting to UBS a $2 per month increase for average revenue per user (ARPU) in FY26.
This broker also factors into forecasts an additional $200m of InfraCo earnings by FY30, following management's announcement regarding Intercity Fibre. The first of its fibre routes will open next month in June, followed by a second route which is expected to be ready in the first quarter of FY26.
Given no change in FY25 guidance, UBS cautions the Telstra share price has outperformed the ASX200 by 15% over last six months driven by a solid interim result and, more recently, by macroeconomic factors.
By contrast, Jarden feels the investor day provided validation for the recent share price rally.
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