Earnings for Telstra and Macquarie Telecom – 12 Months’ Stock Performance

From 30 November 2018 to 2 December 2019, S&P/ASX 200 Communication Services (Sector) improved by ~23.19%, whereas the benchmark index S&P/ASX 200 inched upward by ~21.1% over the same period. This shows that the communications sector performed slightly above the benchmark index.

In the communications sector, amongst the major players are Telstra and Macquarie, which delivered decent returns in the last 12 months. Telstra generated a return of 32.72%, whereas Macquarie delivered a 7.39% return, as on 2 December 2019.

On 2 December 2019, the S&P/ASX 200 Communication Services (Sector) closed at 1,333.9, down 0.07% from its previous close. On the other hand, S&P/ASX 200 moved upward by 0.24% and settled at 6,862.3.

Telstra Corporation Limited (ASX: TLS)

Performance of Telstra in FY2019 (period ended 30 June 2019) was in line with the guidance, highlighting strong progress against the T22 strategy. The results during the period were impacted due to the nbn impact.

  • Total income declined by 3.6% to $27.8 billion.
  • EBITDA declined by 21.7% to $8 billion.
  • A 39.6% declined was noted in NPAT.
  • EPS for the period was 18.1 cents.
  • Total dividend for the full year FY2019 was 16 cents per share.

On 27 November 2019, Telstra released its investor day 2019 presentation and discussed the key market dynamics in each of the market segments for which they are responsible. Moreover, the company also highlighted how the changes are being made as part of the T22 strategy and how it is transforming the business of their customers.

Channa Seneviratne, who is in charge of Network Engineering, provided insights regarding the roll out of 5G.

CEO Andrew Penn highlighted that Telstra is recognised as the leader in the telecommunication technology, which was reflected by its recent clear leadership in 5G and mobile in general. TLS is one of the first to launch 5G on a global scale and has 10s of thousands of clients who use 5G. He also stated that the company’s T22 strategy is being closely monitored by many of its peer groups around the world to learn from its experience.

Moreover, Mr Penn commented that the telecommunication sector on a global scale over the past decade struggled for providing an attractive return on invested capital. A combination of rising capital expenditure driven by demand for additional coverage, speed, capacity as well as resilience has pushed up capex as a percentage of sales throughout the industry

Meanwhile, CFO Vicki Brady highlighted how the T22 strategy of the company has started translating into financial benefits. According to Mr Brady, the strategy is about delivering cost reductions and the simplification of the business, in addition to providing revenue and profit margin benefits. The company continues to remain focused on delivering operational results from T22 and is also monitoring the top indicators that show the ways these results would convert into financial benefits for the company.

The CFO also highlighted that the total costs would remain flat or decline each year. The company targets to reduce the underlying fixed costs by a cumulative $2.5 billion by FY2022. Significant progress has already been made in reducing the underlying fixed costs. In the three-year period to FY2019, the company was able to achieve a reduction of $1.17 billion.

FY2020 Guidance:

  • EBITDA is expected to grow up to $500 million, after excluding the expected in-year headwind of the nbn.
  • 2H FY2020 year on year performance is expected to be stronger than 1H FY2020.
  • Underlying EBITDA growth excluding nbn headwind and product trajectory, particularly mobile, is anticipated to improve in 2H FY2020 as compared to the previous corresponding period.

Stock Information:

The shares of TLS on 2 December 2019 opened flat at $ 3.860. By the end of the trading session, the closing price of the shares of TLS stood at $3.850, down 0.259% from its previous close. TLS has a market cap of $45.91 billion, PE ratio of 21.33x, approximately 11.89 billion outstanding shares and annual dividend yield of 2.59%, as on 2 December 2019.

Macquarie Telecom Group Limited (ASX: MAQ)

In FY2019, the company embarked on a significant investment program, which is expected to generate significant value to shareholders, in addition to creating growth opportunities across all the business segments.

On 29 November 2019, Macquarie Telecom Group Limited released its AGM presentation, wherein Chairman Peter James highlighted FY2019 results for the financial year ended 30 June 2019, which represented the fifth successive year of strong revenue and profit growth of the group.

Key Business Highlights:

  • Revenue up by 6% to $246.6 million.
  • EBITDA increased by 9% to $52.1 million.
  • NPAT declined by 3% to $16.5 million and EPS went down by 4% to 78 cps.
  • Over the last three years, MAQ noted a revenue CAGR of 6.7% and EBITDA CAGR of 17.3%.
  • For FY2019, EBITDA margin improved from 20.5% to 21.1%.
  • Cash at hand at the end of FY2019 was $17.1 million and an undrawn bank syndicated debt facility of $100 million.

Outlook:

  • MAQ expects EBITDA to grow in FY2020, with $27 million to $28 million in 1H FY2020.
  • The company would be adding a public cloud capability to its present hybrid cloud offering.
  • MAQ has received continued demand for its secure cloud from the Federal Government Agencies, thereby giving the company confidence for its growth in future in the government business.
  • Plans are also there to expand in Canberra and its cloud platform.
  • The telecom business migrated thousands of customer services to the nbn in FY2019 and thus is anticipated to continue through to FY2021.

Stock Information

The shares of MAQ on 2 December 2019 opened at $23.230, down by $0.01 from its previous close. By the end of the trading session, the price of the shares of MAQ stood at $23.230, down by 0.043% from its previous closing price. MAQ has a market cap of $494.34 million, PE ratio of 29.79x, approximately 21.27 million outstanding shares and annual dividend yield of 1.08%. on 3 December 2019 (AEST 03:20 PM), the stock was trading at $22.900.


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