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Telstra providing strong returns for shareholders 

Posted on Feb 12, 2015

Telstra’s result this morning (Thursday, 12 February 2015) was an excellent result, with David Thodey and his management team proving that the transformation of Telstra is providing strong returns for shareholders.

The NPAT of $2.1 billion was above market expectations.  Importantly for shareholders, EPS jumped 23.4% to 16.9 cps and the dividend was increased to 15 cents.  By way of capital management, Telstra have reinstated the Dividend Reinvestment Plan (DRP), rather than opting for a special dividend, which had been mooted by some sectors of the market.

Telstra is exceptionally well positioned to benefit from society’s increasing digital life.  The business has attracted 366,000 new mobile customers, with particular success from the recent iPhone launch.  Revenue in the mobile space grew by 9.6% as smart phones have become a staple in the days of most Australians.

Telstra is well on-track in its transformation from an infrastructure business – providing fixed copper lines – to a communications, entertainment and business services conglomerate.  With data becoming the mainstay of most business and retail customers on an almost 24 hour basis, Telstra has the positioning to continue to drive real long term returns.  Incumbent upon Telstra’s management in this pursuit, however, is the ability to remain nimble and to adapt to the ever-changing digital landscape.

The share market will react well to today’s result, as it beat analyst expectations.  The shares have performed strongly recently, and are now fully priced.  Investors have been expecting a strong result, which was delivered.  Management will need to ensure that their recent (and future) acquisitions provide shareholders with the returns that they are now expecting.

We have been long term holders of Telstra, and are encouraged by today’s result.  Our clients will continue to be long term core holders of the stock, although the recent strength may provide some opportunities for lightening of some holdings for portfolio rebalancing.

David Lane is director of Wealth Management at Pitcher Partners