How have ASX telecommunications stocks performed during the August 2021 earnings season?


Australia’s telecommunications landscape is dominated by Telstra Company Ltée (ASX: TLS), but there are a multitude of smaller players listed on ASX that are making their mark on the industry.

The August earnings season gave investors the opportunity to review the performance of not only Telstra, but also ASX telecommunications stocks, including TPG Telecom SA (ASX: TPG), Spark New Zealand Ltd (ASX: SPK), and Limited Choir (ASX: CNU).

How have ASX telecommunications stocks performed relative to the market?

Telstra shares have performed strongly this year. The Telstra share price is up 28% year-to-date, compared to 12.5% ​​for the Index of all ordinary (ASX: XAO) over the same period.

Spark shares only rose 0.73% for the year, trading slightly below levels last seen before COVID. The TPG share price, on the other hand, is currently down 6% since January. Likewise, the Chorus share price fell 9.2% in 2021.

Who are the telecom winners this earnings season?

Telstra announced that it reached a turning point in its financial performance and outlook during FY21.

The telecommunications giant released results in line with expectations and expects earnings growth in FY22. Telstra says he’s building financial momentum. It reported strong performance in its mobile business, green shoots in some growing businesses and declining impact from NBN.

Total revenue declined 11.6% to $ 23.1 billion and reported EBITDA declined 14.2% to $ 7.6 billion in FY21. Profits, however, rose 3.4% to $ 1.9 billion.

Shareholders will receive a fully franked final dividend of 8 cents per share, consisting of an ordinary dividend of 5 cents and a special dividend of 3 cents, bringing the total dividend for the year to 16 cents per share.

Telstra began a four-year transformation strategy three years ago. The company says it is on the right track or has achieved around 80% of its goals.

“We transformed Telstra to be a simpler, more digital and leaner company,” said CEO Andrew Penn.

The company is undergoing a restructuring which involves the separation and sale of InfraCo Towers. Up to $ 1.35 billion of the proceeds will flow back to shareholders in FY22 through a market share buyback.

According to Penn, this is a clear demonstration of how the company creates additional long-term value for shareholders. The remainder of the proceeds from the transaction will be used for debt reduction to ensure Telstra maintains the strength and flexibility of its balance sheet.

Spark New Zealand released its half-year results last month which showed a drop in revenue due to a loss in roaming revenue. Nonetheless, the telephony and internet provider managed to generate profit growth in the upper benchmark range through disciplined cost management.

Revenue fell 0.8% to $ 3,953 million, but Spark New Zealand’s profits rose 1% to $ 1,124 million. Higher depreciation costs and higher tax burdens led to lower profits, with the NPAT falling 8.6% to $ 384 million. Mobile services revenue grew 0.5%, but the broadband market saw revenue decline 1.3% due to continued competitive pressure and slower overall growth in the market. Marlet.

Although New Zealand’s economic recovery has been stronger than expected, the closure of international borders is impacting Spark New Zealand due to lost roaming revenue and lower overall growth in some markets. .

And the losers?

Chorus was another telecommunications provider that experienced a decline in revenues due to weaker market conditions. Combined with competition from other fiber and wireless networks, this resulted in a decrease of $ 12 million in revenue from fiscal year 20.

Chorus’ earnings, however, edged up to $ 649 million from $ 648 million in FY20. This is thanks to rigorous cost management and the absence of one-off costs related to COVID-19 incurred during fiscal year 20. Chorus had 871,000 active fiber connections at the end of the fiscal year, compared to 751,000 the last year. It’s on track to reach the goal of 1 million Chorus connections next year.

TPG’s share price fell when the company’s half-year results were released last month, which showed an 8% drop in profits. This was impacted by the fact that 1H20 profits benefited from a one-off accounting credit.

The HY21 results reveal the full impact of the Vodafone TPG merger, as the HY20 results only had four days of contribution from TPG Corporation. Reported revenue rose 71% between 1H20 and $ 2.63 billion, while TPG’s profit rose 67% to $ 886 million. The Merger Synergy Program is on track and generated $ 38 million in cost synergies in 1H21 as part of its synergy target of $ 70 million for 2021.

What is the outlook for ASX telecommunications stocks?

Telstra expects a return to growth in its underlying business in FY22. The company provided an annual forecast for revenue of $ 21.6 billion to $ 23.6 billion and profit of $ 7.0 to $ 7.3 billion.

The company is pursuing the corporate restructuring project of its organization, which involves the creation of separate subsidiaries. The restructuring is expected to be undertaken through a plan of arrangement, for which shareholder approval is expected to be sought before the end of the year.

Spark New Zealand has planned major infrastructure investments for fiscal year 22. An additional $ 25 million is being invested to accelerate 5G deployment. This will help the company provide 90% coverage of the population by the end of calendar year 2023. Spark New Zealand is also exploring shared ownership models for the ‘passive’ components of its mobile network and its network. fiber. Discussions are ongoing in this regard and there is no certainty that a transaction will continue.

The main strategic axes of TPG for the second half of the year are to attract more fixed customers on its own infrastructure, to improve mobile performance and to reach its objective of synergy of merger costs. It is on track to achieve 85% 5G population coverage in 10 of Australia’s largest cities and regions by the end of 2021, supporting future growth in mobile and home wireless.

Chorus provided guidance for FY22 earnings of $ 640 million to $ 660 million, with total dividends of 26 cents per share. The company is in the process of switching to a new dividend policy based on a majority distribution range of free cash flow.

The dividend is temporarily limited by high capital expenditure related to superfast broadband, but Chorus plans to provide more details on the dividend outlook in February 2022.

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