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TLS $3.06

BBY calling Telstra a sell

  1. blueballs

    8,390 Posts.
    29
    BBY Company Research 12 February 2015
    Telstra Corporation Limited​
    TLS A$6.48 TARGET PRICE A$5.63 UNDERPERFORM 0.0X

    The operational performance has had a hard time
    keeping up with the share price performance in recent
    months. TLS is delivering what it promised, but the
    valuation got ahead of itself driving dividend yield below
    5%. We reiterate our Underperform rating and price​
    target of A$5.63/sh.

    Conclusion: Valuation too rich
    Full year guidance is unchanged and calls for revenue
    and EBITDA growth to be “broadly flat” in FY15. The

    share price appreciation in recent months has driven the
    dividend yield down below 5% (currently 4.7%). With that,
    TLS has lost most of its high yield attractiveness, in our
    view. In addition, we believe “broadly flat” EBITDA growth
    is too low for a stock that trades at 8.6x EV/EBITDA.
    Even assuming consensus expectations for FY15
    dividend of A$ 0.31 are correct, implying a 2 cent
    increase in final dividend after an unchanged first half
    dividend, a minimum required dividend yield on a
    Telecom stock of, say, 5.5% results in a target share
    price of A$ 5.60. On a target EV/EBITDA of 8x, which is
    still rich in our view for a company with minimal EBITDAgrowth,
    TLS should trade at A$ 5.89.
    Consequently, we reiterate our Underperform rating and
    A$ 5.63 price target.

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