Telstra Corporation Limited TLS in Australia

Telstra Corporation Limited TLS in Australia

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Telstra Corporation Limited TLS in Australia

Telstra Corporation Limited is a telecommunications company that has its headquarters in Melbourne, Australia. The company traces its origins back to 1901, when it started as a government body. At the time, the company was called PMG. The company’s name changed to Telecom Australia in 1975. In 1993, the firm took on the name Telstra. The company provides information and telecommunications services and products to a wide range of clients both inside and outside Australia. The firm provides its services and products through a range of operations and divisions (Telstra Corporation Limited, 2014a). As of 2014, Telstra had seven divisions to its name. They include Telstra Consumer, Telstra Business, Telstra Enterprise and Government, Telstra Operation, Telstra Wholesale, Telstra Media and Telstra International. Each of these divisions deals with a specific part of Telstra’s operations, with some focusing on narrowed target markets (Telstra Corporation Limited, 2014a).

Telstra’s stock has fluctuated a lot over the past six months. The stock experienced a decline between July and September 2013. This was followed by two periods marked by an increase in value, the first coming between September and November and then again between December and January. Currently the stock is going through a slight decline as prices drop marginally (Telstra Corporation Limited, 2014a). Over the past six months, the value of Telstra’s stock has mirrored that of the telecommunications service industry. However, the Telstra’s stock was doing worse than the whole market for most of last year. Specifically, the value of Telstra’s stock was lower than the S&P 500 average between August and November. The recent decline in Telstra’s stock value has been experienced in the S&P 500 as a whole. This decline is probably the result of a slowdown in trading over the holiday season (Telstra Corporation Limited, 2014a).

Telstra’s stock opened at 5.220 Australian dollars on January 23, 2014 and closed at $5.180, marking a new low for the month of January. This shows that the declining trend of the past two months will probably continue for a while. As of 13 December 2013, many brokers and analysts recommend that traders hold their stock. The fluctuations in Telstra’s stock over the past few months show that the shares are volatile. The fact that the stock was trading below the market average for the last few months confirms this fact (Telstra Corporation Limited, 2014a).

Despite the seemingly low stock value, Telstra’s financial data indicates that the firm is profitable. In the 2013 financial results, Telstra recorded an increase in net profit and total income. The profit grew by 12.9% (Au $441m) while the income increased by 1.9%. This revenue came despite a decrease in sales in some of the company’s sectors (Telstra Corporation Limited, 2014a). Telstra’s revenue has been increasing gradually over the past six years with the exception being 2009 when there was an unusual jump, followed by a decline in the following year. Between 2008 and 2009, the revenue jumped from 25 billion dollars to 25.6 billion. This was followed by a drop to 25.02 billion in the following year. Between 2012 and 2013, the company’s revenue increased by 441 million dollars. However, the company’s assets have experienced a sharp decline between 2012 and 2013, from 9.9 billion to 7.9 billion dollars (Telstra Corporation Limited, 2014a).

As of 2013, the final dividend for Telstra’s stock was fourteen cents per share. Using Gordon’s model to find the current value, there is a need to factor in the stock’s dividend, rate of return for the investor and the growth rate in dividends (Springer, 2011). For the past six years, Telstra’s stock has returned a dividend of fourteen cents per share, making it safe to assume that the same rate will be earned this year. Therefore, the growth rate for Telstra’s dividends remains at 0%. Other players in Telstra’s market have seen their dividends rise by a marginal 0.5% over the past year (Telstra Corporation Limited, 2013). Calculating Telstra’s stock value (p), the stock’s growth rate (g), dividends (D) and competitor rate of return (k) will be used (Springer, 2011).

According to Gordon’s model, P= D/ (k-g)

P= 0.14/ (0.005-0)

P= $28.

From the calculation above, the value of Telstra’s stock is an estimated Twenty-eight Australian dollars.

To understand the risk of Telstra Corporation Limited, the company will have to be compared with other firms in its industry and the market. Market analysts currently place Telstra’s beta at 0.02 (Telstra Corporation Limited, 2013). A recent trend in the telecommunications market has seen shares lose their value slightly, an issue that has also affected Telstra. The decline in value in Telstra’s stock should be expected to continue for the near future. To estimate the change in rate of returns in Telstra’s stock, a modest 2% decline can be assumed. This means that beta is 0.02, and the change in market value is 2%. The formula for estimating the rate of returns using beta is

β = ∆ K _Telstra/ ∆K _m

0.02 = ∆ K _Telstra / 2%

∆ K _Telstra = 0.04

This shows that the risk for Telstra’s stock is currently valued at 0.04 meaning that the stock is relatively safe (Telstra Corporation Limited, 2013). The risk attached to Telstra’s stock is slightly higher than that of the market, a fact attributable to the poor performance of companies in the telecommunications sector.

The financial figures from Telstra Corp have been fluctuating over the past one year, indicating a lack of financial stability within the company. Because of this, analysts are advising investors to hold their stock, with some even claiming that investing in the company is risky. The capital structures of Telstra Corporation show that the company has a large amount of debt, some of which is operational. The capital structures also indicate that Telstra is relying heavily on sales revenue that it collects from its customers. Over the last three years, Telstra’s sales revenue has amounted for figures as high as 60% of the company’s total assets (Telstra Corporation Limited, 2014b).

Telstra’s main competitors come from the telecommunications industry. The three biggest companies in the sector are Austar United Communications, AAPT and Freshtel Holdings Limited. The financial data from these companies shows that the telecommunications industry has been doing poorly over the past year, meaning that Telstra’s fluctuating figures and stock value cannot be fully blamed on the company’s management. Freshtel Holdings has been in a steady decline over the past six years, with the company recording a net loss of more than one hundred thousand Australian dollars. Austar and AAPT recorded profits in the past financial year, with their capital structures indicating that the firms were stable. All three firms attributed most of their incoming revenue to sales to customer, a trend similar to that observed in Telstra’s capital structures (Telstra Corporation Limited, 2014a).

The performance of Freshtel indicates that the company is currently going through some difficulties. For the past six years, the company’s operating expenses have outweighed its operating revenue leading to recurring losses during that period. However, the company has been working towards reducing its losses and the growth of its stock value over the past few months is a positive sign for investors and shareholders. Alternatively, Telstra has been consistently making profits for the last six years. The company enjoys a large advantage in the industry, a fact that is indicated by the bulk of its revenue in comparison to that if its competitors (Telstra Corporation Limited, 2014b).

Appendices

Performance Charts

Graph indicating the performance of Telstra’s stock in comparison to the telecommunications industry over the past six months (Telstra Corporation Limited, 2014a).

Chart showing the performance of Telstra’s stock over the past six months in comparison to Freshtel shares and the telecommunications market (Telstra Corporation Limited, 2014a).
References

Springer, L. (2011, March 25). How to find a stock’s value using the dividend discount model. Retrieved from http://www.investinganswers.com/education/stock-valuation/how-find-stocks-value-using-dividend-discount-model-2386

Telstra Corporation Limited (2014). Retrieved from http://datanalysis.morningstar.com.au.elibrary.jcu.edu.au/af/company/companyhistory?ASXCode=TLS&xtm-licensee=dat.

Telstra Corporation Limited (2013). Retrieved from http://au.investsmart.com.au/shares/asx/TELSTRA-CORPORATION-LIMITED-TLS.asp

Telstra Corporation Limited (2014). Retrieved from http://www.macroaxis.com/invest/market/TLS.AX–Telstra-Corporation-Limited