Telstra's Dual Strategy: Dividends Rise as Buybacks Begin

Telstra's Dual Strategy: Investor Lens

Telstra's first half FY25 results have delivered a strategic surprise that signals management's growing confidence in the company's financial strength. With a clean 6% increase in underlying earnings, Telstra has not only raised its dividend as expected, but also announced a significant share buyback program. This dual approach to shareholder returns marks a new chapter for a telecommunications giant that has dramatically transformed recently.

Segment Performance: Mobile Leads with World-Class Margins

 
Mobile dominance continues: 

The Mobile division delivered 4% earnings growth, exceeding analyst expectations despite only four months of price increases and disruption from the 3G network shutdown.

Why it matters: 

With Mobile (>40% market share) accounting for over 60% of total EBITDA and maintaining an extraordinary 47% margin (among the highest globally), this segment remains Telstra's crown jewel. The division's ability to grow postpaid subscribers by 48k while experiencing minimal disruption from the 3G shutdown demonstrates operational resilience.

InfraCo exceeds expectations: 

The fixed infrastructure business grew EBITDA by 7% compared to a 2% expectation, with margins expanding to an impressive 62%. 

Why it matters: 

InfraCo's outperformance indicates that Telstra's structural separation strategy is yielding results, creating focused business units that can optimise operations independently.

The fixed segment shows dramatic 

Improvement: Fixed EBITDA surged 74% year-over-year to $183 million, primarily uplift in CS&B  and its digitisation.

Why it matters: 

This historically challenged segment is finally showing signs of stabilisation after years of 

NBN-related headwinds, contributing to a more balanced business portfolio.

EBITDA Growth and Profitability: Transformation Bears Fruit

 
Total EBITDA up 6% to $4.28 Bn, with 6/7 business segments showing growth.
Why it matters: 

The broad-based growth across multiple segments demonstrates that Telstra's transformation isn't dependent on a single division, creating a more sustainable earnings profile.

Return on invested capital (ROIC) reached 8.0%, supported by strong cost performance. 

Why it matters: 

This metric indicates that Telstra is deploying capital more efficiently, a key factor for long-term shareholder value creation and a sign of improved management discipline.

Earnings per share grew 6% to 8.9 cents, supporting the dividend increase.
Why it matters: 

Consistent EPS growth provides the foundation for sustainable dividend increases without compromising the company's financial position.

Capital Allocation: A New Framework Emerges

Management shifts to cash EPS focus for capital allocation decisions, moving away from traditional accounting EPS.
Why it matters: 

This change acknowledges the reality that Telstra's cash flows exceed accounting profits due to non-cash expenses like depreciation on leases, spectrum, and fibre assets.

$750 million share buyback announced, commencing March 12, 2025.
Why it matters: 

While some interpret buybacks as a sign management lacks investment opportunities, they can also indicate management believes the stock is undervalued. With Telstra, the buyback likely signals that management sees the current share price as disconnected from the company's intrinsic value, particularly given the stable cash flows from core businesses.

Capital reallocation to growth areas, including $800 million of capex redirected to mobile over the next four years.
Why it matters: 

This targeted investment demonstrates that while management is returning capital to shareholders, they're simultaneously investing in Telstra's highest-return business to maintain network leadership.

Cash Flow and Debt Position: Room to Maneuver
Full-year free cash flow guidance of $3.0-3.4 billion implies a free cash flow yield of nearly 4.5%.
Why it matters: 

This strong cash flow generation supports both dividends and buybacks while providing flexibility for strategic investments.

Gearing ratio of 2.16x at FY24, with projections to decrease to 2.0x in FY25.
Why it matters: 

Telstra maintains headroom under both its own "comfort zone" debt ratio (1.5-2.0x) and rating agency thresholds, providing flexibility for additional capital returns without jeopardising its financial position.

Potential for $2.25 billion in cumulative share buybacks through to FY28 as a base case, according to a leading analyst
Why it matters: 

The multi-year buyback capacity indicates sustainable financial strength rather than a one-time return of capital.

Dividend Strategy: Sustainable Growth Ahead

Dividend increased to 9.5c from 9.0c per share, a 6% increase.
Why it matters: 

Dividend increases typically support share price appreciation by attracting income-focused investors and signalling management confidence in future cash flows.

 
Potential for dividend to reach mid-20c range by FY28, limited primarily by franking credit generation.
Why it matters: 

This long-term dividend growth trajectory provides investors with visibility into future returns, supporting the investment case for patient shareholders.

 
Dividends currently exceed EPS, but are supported by superior cash flows.
Why it matters: 

This highlights the importance of Telstra's shift to cash EPS for capital allocation decisions, ensuring dividend sustainability despite accounting metrics suggesting otherwise.

Asset Monetisation: Reducing Complexity and Information Asymmetry

Sale of Ventures business completed, with proceeds reflected in the first half cash balance.
Why it matters: 

Divesting non-core assets simplifies Telstra's story for investors, reducing the information asymmetry that often leads to valuation discounts for conglomerates.

 
Foxtel sale in progress, not yet reflected in cash balances.

Why it matters: Beyond the immediate cash proceeds, divesting media assets allows management to focus on core telecommunications infrastructure, where Telstra has sustainable competitive advantages.

 
Portfolio restructuring continues, with the NAS division identified as a focus area.
Why it matters: 

This ongoing portfolio optimisation process suggests management is continuously evaluating where Telstra can create the most value, rather than maintaining legacy businesses for size alone.

Future Growth Catalysts: Beyond the Core

 
Accenture's partnership to develop AI capabilities, with $700 million investment primarily focused on cost reduction rather than revenue growth.
Why it matters: 

This strategic initiative demonstrates management's willingness to invest in emerging technologies with clear ROI metrics, rather than pursuing technology for its own sake.

Intercity fibre rollout progressing, with seven routes under construction and the first two (Sydney-Canberra and Melbourne-Canberra) expected to be ready in late 2025.
Why it matters: 

These new routes position Telstra to capitalise on growing demand from hyperscalers and the AI industry, representing a strategic pivot toward higher-growth market segments.

Mobile ARPU expected to benefit from the full-period impact of price increases in 2025.
Why it matters: 

This pricing power demonstrates Telstra's dominant market position (>40% market share) and ability to translate network quality into financial returns.

 
Investment Thesis: 

A Transformed Telstra. Telstra has completed a remarkable transformation, evolving from a clumsy giant with unfocused international ambitions to a streamlined, efficient telecommunications infrastructure business. With industry-leading margins in mobile, growing infrastructure returns, and a disciplined approach to capital allocation, today's Telstra offers investors exposure to stable cash flows with modest growth potential. The combination of dividend growth and share buybacks creates a compelling total return proposition in an uncertain economic environment. While the stock may never generate the same level of excitement as high-growth tech names, its 4.5% free cash flow yield and clear path to higher dividends make it a worthy consideration for income-focused portfolios. 

As management continues to monetise non-core assets and reinvest in high-return businesses, Telstra appears well-positioned to deliver sustainable shareholder returns while maintaining the financial flexibility to respond to industry shifts. The upcoming investor day later this year is expected to provide further clarity on Telstra's strategy through 2030, potentially catalysing additional investor interest in this transformed telecommunications leader.

source: AFR, Telstra, WSJ, Reuters, Yahoo Finance

Aussie Broadband's FY23 Results

 Aussie Broadband's  (ABB) FY23 Results and Why it's Emerging as an Acquisition Target

• NBN
• Consumer
• 2019, 100K customers, unprofitable. 
• 2023, 700K customers, NPAT of $37Mn.
• 65% of Revenue from the consumer segment.
• 12% of NBN customers are on >  $100/month plan and 40% of Aussie customers are in this segment. Aussie acquires more than half of all new high value subscribers to the NBN.
• Business & Govt
• Business segment grew by 8% to $90Mn Rev. EE is adding to margin growth
• >800 new deals – SMB is driving it 
• Both segments utilise wholly owned fibre and an internally built cloud platform to generate 50% GM against residential GM of 30%. As those segments grow, profits will disproportionately rise.
• Smallest telco to build its own fibre backhaul.
• Built in house software to manage data loads, billing and other core functions.
• Wholesale
• business offers white labelled telco services to 3rd parties like Origin, was its fastest growing segment and a genuine surprise. Revenue rose 60% to over $100Mn and maintained 30% GM. Management expects margins to rise as more partners use the service.
•  Cloud
• With 2 new data centres added to the business, growing fibre and a bespoke cloud platform, there is little doubt that Aussie aims to build a capability to sell cloud services to enterprise and government. 
• This is ambitious and chances are this will fail. Globally Telcos have struggled with Cloud as HPS’s and Tier 2 Cloud players are far ahead in the game.

Acquisition Target

• ABB is to become a billion-dollar business in the next 2 years. 
• Healthy balance sheet.
• Currently, the EV is $0.946 Bn and with good growth potential for Rev and Margin growth in the next 2-3 years.
• The market share of NBN is around 8%. 

My previous on TPG and NBN Co FY23 Results and its strategic play. 

Source: AFR, TPG, ACCC, ITnews, Reuters, ABB, UBS

TPG Heading for a Challenging Future 

HY23 Results - Key Takeaways

-

• The merger with Vodafone was a necessary remedy to the NBN, but it hasn’t lived up to expectations. TPG’s plan for the Vodafone merger was to do what it has always done – cram lots of users through a fixed asset base to raise profits. It hasn’t worked out that way.
• Selling off the wholesale Fibre Business can be likened to relinquishing a fortress, where the installation of the fibre requires minimal capital and new customers translate to higher margins and earnings, with the capacity for expansion being remarkable. This decision can be interpreted as a demonstration of TPG's weakness, rather than one that emanates from a position of strength.
• The business cannot sustain an expensive multi-brand strategy as it shifts towards a pure RSP play. Hence abandoning it.
• The emerging trend of choosing Prepaid mobile over post-paid is reemphasised (MVNO Play). Post-paid ARPU increased primarily from the price rise in January and February.
• The mobile network is underutilised with just 3.2Mn post-paid mobile users compared to 6Mn for Optus and 9Mn for Telstra. This surplus capacity enticed them to go for the MOCN deal with Telstra.
• FW is cannibalising NBN and ADSL subscribers and improving its margin (bypassing NBN). About 0.5Mn premises are on FW. This is a growth area with an addressable market of around 20% of the Mobile Segment. 5G rollout of 3K sites by the EOY and 5K by 2025. 1 site requires 50 weeks to provision. 
• With NBN EE's market-leading position in E&G, business is experiencing stickiness, incremental revenue and higher margin managed services (SD–WAN).
• Learnings from New Zealand in the Mobile segment are acting as a guiding force.  
• IT Transformation (like single billing) has reduced impediments in P2O, O2A and RA, enabling agility in their GTM strategy.

Why is the Stock Price Flat?

TPG's share price has been flat at $5.47, with a marginal rise of 0.03c after HY23 results on August 24.

The critical reasons for this are:

• Growth in the Mobile segment because of roaming charges, rationalisation of plans and price increases to combat inflation.
• Growth in FW bypasses NBN and magnifies the margin.
• Growth in E&G supplemented by Fibre Fast and EE.
• The expected sale of the wholesale arm, Vision Stream, is seen as a value creator in the short term. In the longer term, TPG will face severe headwinds to sustain the business because selling a fortress (fibre infra) on which the business is built is not a good move.

• By focusing on pure RSP play in fixed access, the company has positioned itself as a semi-premium player, similar to Virgin Airlines. This strategic approach enables them to provide cost-efficient services without compromising on customer service. Hence, consolidating all the brands under one umbrella, streamlining their operations and enhancing their overall efficiency. This is uncharted territory for TPG as they will face competition from both high-end and low-end players.
• In the Mobile segment, they have an underutilised network, hence MVNO play will rise, and they may start exploring other network-sharing deals in the future.
• TPG is preparing itself for a challenging future.

My previous on NBN Co FY23 Results and its strategic play. 

Source: AFR, TPG, ACCC, ITnews, Reuters, UBS

 NBN Co FY 23 Results - Key Takeaways 

--

• NBN Co’s Revenue has increased by 4% in FY23 and is facing headwinds for increasing revenue. 
• CAGR stands at 8.7%. WACC - 3.18% (heading upwards)
• Has the highest EBITDA margin (68.2%) among telcos globally.
• Consumer uptake is at a snail's pace, with only 40K net additions in the last 12 months. 
• 12.3 Mn customers ready to connect 
• 8.56 Mn are active (30% idle network)
• 6.64 Mn (78.2%) users are on <= 50 Mbps
• 2 Mn (24.2%) users < 50 Mbps, 4.52 Mn users on 50 Mbps
• 1.83 Mn (20.7%) users are on >= 100 Mbps (risen by 2%)
• 6.6 Mn premises ready for Ultrafast (incl 2.5 Mn on HFC)
• Poor uptake – only 50-60K has been upgraded
• In all, 1.83 Mn users are using Ultrafast (>=100 Mbps) internet.
• Facing heat from Starlink and 5G providers in remote areas
• Starlink in Australia > 120K subscribers
• Sky Muster has declined from 108K to 96.1K
• In the Enterprise 35K EE SIOs are active. 
• It seeks to improve its top and bottom line by implementing price increases through the SAU. The next revision is to be submitted soon.
• Today ARPU is $47 (Residential, stagnant), and FY24 ARPU is $49 (sub-SAU approval)
• Heading for profit (NPAT) without a soft write-off of $32 Bn in H1 FY25. With the write-off, it could be Profitable in FY 24. 
• NBN’s Enterprise Value has risen from $25 - $19 Bn to $36 - $29 Bn and will be heading northward of $40 Bn if SAU with a price increase is accepted in FY24. A good prospect for the government as it prepares to offload its investment after FY25.  
• The total cost of ownership TCO of NBN in 2023, using ICRA, is A$76Bn+, and without ICRA consideration, it is >A$59.9BN

--

\

NBN Co's Total Cost of Ownership (TCO) from 2010 to 2023

• NBN was established to reduce the digital gap in Australia by making high-speed internet (>100 Mbps) affordable and removing Telstra's monopoly in fixed-line access. While NBN has succeeded in removing Telstra's monopoly, it's disheartening to see that they have failed to reduce digital exclusion by providing affordable high-speed internet.
• After investing A$76Bn over 14 years, Australia's average fixed internet speed ranks 81st globally at 53 Mbps, lagging behind many other countries in terms of internet connectivity.
• 75% of Australians are consuming the internet at a speed of 50Mbps or less.

Source NBN Co, AFR, Reuters, ACCC

Optus on Recovery Path from Cyber Security Attack

Has Optus on Recovery Path from Cyber Security Attack   

Quick Snapshot of the Performance:

•  Optus is facing multiple challenges. While it was trying to recover from the losses it suffered during the COVID pandemic, it was impacted by a data hacking issue in September 2022. 
•  This incident has shrunk their brand equity, and customers have lost faith. Hence, 65K customers have churned; in particular, the Mobile business suffered at least in the short term.
• Optus have recovered from its loss of 65K in 1-2 quarters, which is not only surprising but commendable. It is worth pointing out that the price rise has assisted in cushioning the effect.
• Having said that, the data hack has impacted their brand equity and has further strained their finances and balance sheet. 
• Singtel board and exec team need to make a call if they can recover the brand equity or if it is time to rebrand or sell the business, or increase its MVNO or white label, like Amaysim.

Q3 FY23 Story from Numbers 

• Impact of cyber attack contained within Q3FY23, positive net connections from Dec 2022. 
• Revenue has slipped, not a surprise, with 65K subscribers lost to the competition and recovered, so to get new customers and win back a lot of incentives (like price discounts) had to be given, hence this impact (revenue numbers are not shared, only % is highlighted). 
• EBITDA has improved, driven by growth in mobile & fixed, assisted by the price rise in Q2 and recovery in roaming.
•  Cost synergies from Optus Enterprise integration. 
• Amaysim is leading the AU MVNO market.

Impact of Cyber Attack   

• The cyber attack's impact (Sep 22, 2023) is addressed at a war pace. 
•  The no of subscribers lost (65K) is not seen in the final numbers.

How the Singtel Stock is Performing 

PE is above the global average and in the growth range, suggesting the stock has growth potential despite its downward trend. 

Source: Google Finance, Singtel.com, AFR.com, IBIS World, WSJ,