Telstra cops battering as analysts get tough

TELSTRA chief Andrew Penn’s strategy to revitalise the telco has been greeted with disdain by some analysts, who have dished out brutal cuts to their share price targets.

The telco’s shares are hovering near a seven-year low following Wednesday’s announcement of plans to slash its workforce by 8000 as part of its biggest shake-up since it was privatised more than two decades ago.

Telstra shares yesterday closed 1.8 per cent, or 5c weaker, at $2.72 and have slid almost 36 per cent over the past year.

CLSA analyst Roger Samuel downgraded Telstra to a “sell”, lowering his earnings and dividends forecast.

He said while wholesale cost-out measures and asset separation were a step in the right direction, measures were desperately needed to address deterioration in underlying earnings before interest, tax, depreciation and amortisation.

Mr Samuel said Telstra’s full-year 2019 earnings guidance of $8.7 billion to $9.4 billion was 11-18 per cent below consensus. He cut his earnings estimates significantly and his earnings per share forecast for 2019 and 2020.

Mr Samuel said that with its underlying business under stress and its dividend payout ratio unsustainable, Telstra was in for a hard time over the next two years.

He predicted revenue to decline by 2 to 3 per cent per annum until financial year 2022 and the dividend to fall to 18c per share in 2020/21 and then 14c per share thereafter.

Citi analyst David Kaynes cut Telstra’s target price from $2.70 to $2.30 per share.

He forecast dividends would fall to 10c per share by financial year 2020.

He added that the strategy day had done little to address Telstra’s revenue problems.

“We believe Telstra’s market share remains unsustainably high and expect mobile EBITDA falls of 30 per cent over the next four years,” Mr Kaynes said.

Telstra’s downward revenue trajectory into 2019 also prompted Macquarie analysts to cut their target price to $2.75 a share.

Morgan Stanley’s Andrew McLeod pegged Telstra’s 12month price target at $3 a share.