"We're surprised": Telstra slides after reporting underlying growth, mobile success

• Underlying EBITDA up 5.1%
• Mobile division ARPU up 5% with guidance for mid-single-digit revenue growth to continue to 2025.
• Interim dividend maintained at 8 cents a share
• Operating expenses down 6.7% to $7.4 billion
• FY 2022 guidance restated 
• Revenue down 4.4% to $10.5 billion
• Reported EBITDA down 14.8% to $3.5 billion

It's a solid result that is generally in line with expectations. 

But if you look at the composition, the composition of the earnings is strong. The better quality divisions such as mobile outperformed and probably the lower quality, less valuable divisions like NBN reselling probably underperformed.

So from our perspective, we're surprised by the drop in the share price.

Were there any major surprises in the result that you think investors should be aware of?

I think the leverage to the bottom line of mobile, I think was probably the biggest surprise.

I think everyone was expecting some ARPU growth and some subscriber growth, but the leverage they had to the bottom line with EBITDA increasing 25% again was a very strong result.

What's encouraging is Telstra actually gave guidance that they expect the mid-single-digit revenue growth that they're achieving in mobile to continue to 2025. That provides a really good outlook for the company.

Would you buy, hold, or sell Telstra

It's a buy for us. The company's weathered $3.4 billion of NBN headwinds over the past few years. But they are all behind them.

And then if we look going forward, the mobile division, we expect it to deliver really good growth over the next two to three years. 

The business also owns a number of underappreciated, high-quality infrastructure assets, particularly the NBN rental business where they rent the ducts and pipes to the NBN, which is a billion-dollar revenue stream, which is linked to CPI.

What are your expectations and outlook for the company, and the telco industry more broadly?

Look, I think the outlook's good for all the players in the industry. The industry has had a very tough competitive period of mobile pricing really up until about six months ago. 

We saw industry profitability really collapse to the stage where Optus and Vodafone weren't making money. We're at pretty early stages in that profit recovery or profit repair period. 

The returns of the industry are still very low and they need to spend a lot of CapEx in rolling out their 5G network. So the outlook for mobile looks strong for the whole industry over the next few years as we get some more rational competition.