Will Telstra’s new strategy turn its fortunes around?
Telstra (ASX:TLS) has just released its much-anticipated Telstra2022 strategy, which sets out the company’s longer-term prospects for growth. We like the new direction, and sense that TLS’s share price plunge may be coming to the end. But strategy is one thing; execution is another. The question is: can management deliver?
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
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tooktik.nuntapun
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My personal believe in the trend of massive growing Internet usage and online social network. I think it is quite normal decision of CEO to invest in the future trend like NBN. If he didn’t do it, Telsta will be behind the competitors anyway. So I think if I were him, I will do the same. But yes 12.5B debt is huge amount but if they do it right, They will be will there.
I am hearing Telsta ad on radio. And received the brochure at my apartment. Recently 2 friends of mine who used to work in Vodafone just change his mobile phone plan to Telsta.
This is the great business and I would like Penn to keep pushing sales harder, set all the plan and promotion which can beat all the competitors and we will see the next financial statement of Telsta
Danny
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Hey guys, I kind of view Telstra and the telecommunications market much like how you describe the free to air television market in Australia, a few big poker players, with chips moving from person to person, so I find it hard to see where much growth can come from even with more data usage and devices in the future, besides a large number of babies being born, a lot of immagration coming in or them expanding overseas. Is there something I’m missing?
Tim Kelley
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Hi Danny. Some of the important differences (in my view) are that in this case there is only a single dominant player with scale, and technology change presents real opportunities for revenue growth.
John
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If I can say one good thing about Telstra’s latest strategy is that they genuinely seem to be trying to simplify the business and are trying not to be too sneaky with customers. In the end customers take note of these things.
I say this given that many businesses these days seem intent on window dressing and the managers seem more interested in their own remuneration than the running of the business.
I get the feeling that the board and management have a degree of integrity and that seems to count for a fair bit these days especially when things go bad and in a market which is changing so rapidly.
Roger Montgomery
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Thanks for sharing your thoughts John.
Phil WASER
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The longer term upsides of 5G are not without risk associated with using new technology. Some seem concerned that the radiation/emf issues may be akin to being on the wrong side of a microwave oven…
Roger Montgomery
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The issue with 5G is not the download speed – you can ask transmitters to send serious electromagnetic radiation, it is upload speeds because handsets must limit the amount of [even non-ionising] electromagnetic radiation. That suggest the microwave oven analogy you have been told (5G being any different to 3G or 4G)) might be a furphy.
Dung
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I hold different portions of TLS shares in multiple porfolio. I try to work out current value of TLS share based on your Value.able book and definitely understand that as a guideline and not sure I will work out correctly or not? Please give me the steps to work out and tell me its current value. Many thanks.
Roger Montgomery
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Hi Dung we think the valuation might sit around the $3.00-$3.15 mark but ultimately the valuation will change as the inputs change. Our inputs could change at any time so you must not rely on any estimate as it could change tomorrow.
Joe Rich
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Great article Roger.
So the strategy is sound, however execution is a very ambitious task given the extent of the changes (8,000 job cuts, complete change to the way of working, restructure to 2 companies, etc.)
Given the very ambitious level of change required, does this warrant that value investors demand a higher discount to IV than usual? Does the greater discount required offset the greater discount presented in recent weeks by the market?
Roger Montgomery
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Thats always the question Joe. When is comes to margins of safety, more is always better.
Anthony
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Thanks for your thought provoking article about Telstra. I can see the potential upsides that you have discussed, but I still remain very cautious. I have four main concerns;
1. The telecommunications industry will remain intensely competitive for many more years. This is eating away at the margins of all the main players (Telstra, Optus, Vodafone, TPG). Telstra has the most to lose because its margins were the highest.
2. Telstra plans a major restructure. This will cause significant disruption throughout the company and could result in additional expenses or loss of customers. The restructure is necessary but carries lots of risks.
3. The telecommunications industry has been plagued by political interference and Government regulation. I’m worried that this will continue.
4. In the long term, Telstra’s restructure might succeed and it might regain its market dominance. But this is a rapidly changing industry and long term predictions are fraught with danger.