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Telstra’s Promising Earnings Outlook: Key Insights from Goldman Sachs
Telstra Corporation Limited (ASX: TLS) is on track for significant earnings growth over the next few years, propelled by strategic price increases in its mobile and internet offerings, as highlighted by analysts at Goldman Sachs.
On Tuesday, the telecommunications giant revealed an adjustment to its pricing structure, implementing stronger-than-anticipated hikes of $3 to $5 per month for its mobile and internet plans. This announcement positively impacted its stock performance, leading to a 2.2% increase in share value, closing at $4.68—an impressive level not seen since April 2017.
Strong Pricing Power
Despite facing competitive pressures from rivals such as Vodafone, Telstra has successfully maintained a notable pricing premium of 45%—surpassing its historical average of 32%. Goldman Sachs interprets this as indicative of robust subscriber growth, even amidst a competitive market. The planned price increase is projected to enhance Telstra’s postpaid average revenue per user (ARPU) by around $2.40, translating to a blended increase of $4 benefiting 65% of its customer base.
These adjustments are expected to propel mobile service revenue growth by 3.7% in FY25 and 4.6% in FY26, despite anticipated competition in the enterprise sector and potential customer migration to lower-cost alternatives. The pricing for prepaid mobile plans will remain stable following significant reforms in 2024, reflecting strategic considerations associated with higher implementation costs.
Strategic Initiatives and Cost Management
Telstra’s upward pricing adjustments are also intended to finance new projects, such as an upcoming Starlink messaging service, enhancing its network capabilities. Furthermore, adjustments to NBN residential plan prices will outpace wholesale cost increases, potentially improving Telstra’s NBN margins in FY26, albeit at the risk of slower subscriber growth. Competitors like Aussie Broadband (ASX: ABB) and Superloop (ASX: SLC) may gain from this transition as customers look for more economical choices.
Financial Projections and Dividend Consistency
Goldman Sachs forecasts a robust increase in postpaid ARPU growth of 2% in FY25 and 4% in FY26, helping offset a slowdown in net subscriber growth, projected at 109,000 for FY25 and 11,000 for FY26. This positive trend supports an optimistic earnings outlook, prompting Goldman Sachs to revise earnings per share (EPS) projections for FY25-27 upwards by 0 to 4%.
Telstra is expected to maintain dividend stability, with anticipated payouts of 19 cents per share in FY25, 20 cents in FY26, and 21 cents in FY27—yielding approximately 4.6% to 5% based on current share prices. Additionally, the investment bank has raised its 12-month price target for Telstra to $4.90 from $4.25, reflecting improved earnings expectations and a higher valuation multiple influenced by Telstra’s strong positioning relative to its global telecom counterparts.
Conclusion
Telstra’s capability to implement above-inflation price increases while sustaining subscriber loyalty underscores its defensive strengths and market leadership. The company’s emphasis on cost control, including a targeted A$350 million reduction initiative by FY25 and a substantial A$750 million share buyback programme, reveals notable financial robustness. Although its trailing price-to-earnings (PE) ratio is approaching the 30x range, ongoing capital management strategies and a streamlined portfolio are perceived as underappreciated catalysts as the company gears up for the forthcoming T30 investor update.
In summary, Telstra’s strategic pricing decisions, coupled with a solid financial outlook, position the company favourably for investor engagement and growth in the upcoming years.
