Telstra flags earnings pressure as tight competition weighs on margins

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  • Telstra‚Äôs underlying earnings likely to be at lower end of $10.1–$10.6 billion forecast.
  • Positive user growth is being offset by stronger price competition.
  • The company reaffirmed guidance of dividends of 22 cents per share fully franked.

Telstra has warned that underlying earnings this year are likely to come in at the lower end of its guidance range.

In a statement to the ASX this morning, the company flagged earnings before interest, tax, depreciation and amortisation (EBITDA) of between $10.1 billion and $10.6 billion.

The figure is consistent with previous guidance, but Telstra confirmed the end result is likely to be at the lower end of the range.

Telstra said that subscriber numbers are growing for products and services in the fixed-line and mobile markets. However, “the industry is facing competitive dynamics that have led to increasing pressure on both fixed and mobile margins,” Telstra said.

“The challenging trading conditions in FY18 are expected to continue in FY19, including ongoing pressure on mobile and fixed average-revenue-per-user (ARPUs) and the accelerating impact of the NBN.”

Telstra reported subscriber growth of 36,000 in fixed-line products for the March quarter, although the price-point for minimum monthly commitments declined due to high competition.

Similarly, mobile user-growth rose by 60,000 in the quarter but there was a 3.6% in ARPUs.

The company said it expects capital expenditure to be in the upper-end of the $4.4–$4.8 billion range. Free cash flow is expected to be at “the top end or moderately above” the forecast range of $4.2–$4.7 billion.

Net receipts from the NBN, less expenses incurred for costs-to-connect, are forecast to be between $1.4–1.9 billion.

The company reaffirmed guidance for a fully-franked dividend of 22 cents per share.

Telstra shares were down by more than 4% at $3.07 in early trade this morning, and continue to languish at the lowest level since 2011.

The company’s stock price slumped hard in August last year after it announced a cut to dividends.

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