AUS
NZ
UK
CA
USA
IND
Highlights
- Telstra's share price has remained stable in 2024, underperforming the ASX 200.
- UBS expects a 5% EBITDA CAGR from FY24 to FY27, with 8% dividend growth.
- A 10% capital growth forecast and 6.8% dividend yield could deliver a total return of 17%.
Telstra Group Ltd (ASX:TLS), Australia’s leading telecommunications company, has experienced a lackluster performance in 2024. With the ASX 200 Index up nearly 11% year-to-date, Telstra’s share price has remained relatively flat, close to where it began the year. However, beneath the surface, Telstra’s underlying financials are improving, with strong projections for the upcoming year. Analysts are optimistic about its potential for growth, making Telstra an intriguing buy opportunity for investors seeking stability and long-term returns.
FY25 Forecasts: Positive Outlook Despite Some Headwinds
UBS has a positive outlook for Telstra in FY25, citing several key factors that support its optimism. A significant driver for the company’s expected growth is its mobile price hikes, which were implemented in late August for postpaid customers and late October for prepaid customers. These increases are expected to lead to an average revenue per user (ARPU) growth of 2.1% in FY25, helping to offset enterprise challenges in the first half of the financial year.
Additionally, Telstra is focusing on a AUD350 million cost-out target by FY25, aiming to improve efficiency and profitability. Despite some challenges in its enterprise business and a slowdown in mobile subscriber growth due to falling international migration, UBS expects Telstra to achieve a modest 0.9% compound annual growth rate (CAGR) for its postpaid subscribers.
Importantly, UBS projects a solid 5% EBITDA CAGR between FY24 and FY27, underlining Telstra’s ability to increase profitability over the next few years. On the dividend front, UBS forecasts an 8% CAGR in dividends over the next three years, providing attractive passive income potential for investors.
Telstra’s Financial Projections: Steady Growth and Dividend Hike
UBS has outlined robust financial projections for Telstra in FY25, forecasting total revenue of AUD23.86 billion, a 6% increase from FY24. Earnings before interest and tax (EBIT) are projected at AUD3.84 billion, and net profit is expected to reach AUD2.15 billion. These figures represent positive growth compared to FY24 results, indicating Telstra’s continued financial health.
The broker also anticipates a 5.5% dividend increase, bringing the payout to 19 cents per share in FY25. With the current share price, this would result in a grossed-up dividend yield of 6.8%, including franking credits. For investors seeking both capital growth and attractive dividends, this makes Telstra a compelling investment option.
Telstra’s Share Price Target: A Potential Market-Beating Return
UBS currently holds a “buy” rating on Telstra shares, with a 12-month price target of AUD4.40 per share. This target implies a potential 10% capital growth in addition to the 6.8% grossed-up dividend yield. Together, these factors suggest that Telstra could deliver a total return of approximately 17% over the next year. Given that the broader market has seen a strong 2024 performance, this level of return could position Telstra as a market-beating investment for those looking for stability in the telecom sector.
