Telstra
Recommendation
Telstra has, thankfully, denied claims that it plans to buy Nine Entertainment or Ten Network. Instead, the media division intends to focus on becoming a digital content provider in an attempt to nab market share before the inevitable arrival of overseas competitors such as Hulu, Netflix, Google or Apple. But it’ll need to sell thousands of T-boxes before having any meaningful impact on earnings as the media division currently only generates around 8% of revenue, albeit at juicy 53% earnings before interest, tax, depreciation and amortisation margins.
Telstra has also increased its mobile access prices by between 10% and 14%. Telstra now charges around a 34% premium for data (Internet) and a 15% premium for voice services as compared to Optus or Vodafone. Increasing prices following a year of heavy discounting is a sound strategy, and should help Telstra stem the decline in average revenue per customer (APRUs) which has fallen from $66.38 in 2010 to $63.76 in 2012. Overtime, as Vodafone and Optus roll out 4G networks this pricing gap should narrow.
The market’s well aware of these positive changes with Telstra’s share price up 7% since 01 Jun 12 (Hold – $3.56). On a forecast yield of 7.3%, Telstra remains a comfortable HOLD.