Telstra's earnings, price targets cut at UBS
Telstra has had its price target cut by analysts at UBS after reporting "uneventful" earnings and slashing its dividend on Thursday.
Telstra has had its price target cut by analysts at UBS after reporting "uneventful" earnings and slashing its dividend on Thursday.
The telecommunications giant cut its dividend as it revealed rising charges associated with the NBN rollout will blow a bigger-than-expected hole in its earnings.
Analysts at UBS cut their Telstra price target to $3.90 from $4.30 following the company's profit results.
"Few, including us, had anticipated how quickly (by FY18), and dramatically (31¢ DPS cut to 22¢), the dividend profile would be cut," UBS analysts told clients.
"Besides the dividend, we also reset our long-term EPS (earnings per share) outlook – as we had underestimated the pace of fixed margin declines, and the extent one-off NBN contributions were underpinning near-term EPS."
Telstra had previously predicted its underlying earnings would fall between $2 billion and $3 billion as a result of losing much of its wholesale business to the NBN.
But the telco on Thursday said its analysis suggested the long-term wholesale charge of access to the NBN, the controversial Connectivity Virtual Circuit (CVC) charge, would double in the coming years, pushing its earnings black hole to $3 billion.
While Telstra left its 2016-17 dividend payout unchanged at 31¢, the company expects total dividends would fall to 22¢ in 2017-18. This includes ordinary and special dividends to be paid as a result of one-off payments from NBN.
On Telstra's proposed options for its NBN Co payments, including securitisation, UBS said:
"Many hurdles to potential securitisation remain, but we think investors may be underestimating the implied valuation of the ISA (Infrastructure Services Agreement) receipts."