ASX:TLS

Since posting a low of $3.34 on November 28th, shares of Telstra have gained over 10% reaching a high of $3.72 in early trade.

Much of this recent optimism in the company stems from TLS wrapping up the second phase of their transmission network upgrade and deploying their high capacity optical technology, which is known as “5G”

This increased capacity and faster download speed is shaping up as a winner as TLS is outperforming its rivals on the new iPhone X and iPhone 8 orders.

Because TLS has greater network capacity, they are able to charge a premium on these new mobile phone systems.

Technically, the next price hurdle will be at $3.83, which is the bottom end of a gap lower on August 29th.

  Telstra

During the recent AGM, Telstra chairman John Mullen covered many topics including market penetration to the NBN.

However, what shareholders were most interested in hearing was that the 22 cent dividend would be a low as it would go and, if anything, will be increased.

Shares of TLS have been beaten down pretty hard since trading over $5.00 earlier this year. In our view there is plenty of pessimism priced into the stock.

TLS is the dominant player in the domestic telecom industry, with strong brand recognition and a network quality advantage which underpins a 49% subscriber advantage.

The stock currently trades on a P/E of 10X and hasn’t been this fundamentally cheap since 2010, when base interest rates were 5.5%.

It’s our view that TLS offers good value at current levels and we have a medium-term price target of $4.15.

Telstra

Shares of TLS have been on a protracted downtrend since mid-February when their shares traded as high as $5.22.

Earlier this week, TLS Chairman John Mullen met with institutional investors to assure them that the dividend is unlikely to be cut further.

Telstra announced in September that its 2018 full-year dividend would be reduced by 30% to 22 cents a share…..which Mr Mullen said is effectively the floor.

At the current price of $3.45, a 22 cent dividend pencils out to a 6.3% yield.

It’s our base case that most of the bad news about TLS is priced in and accumulating shares in this price range is a reasonable investment.

Telstra

Shares of Telstra have touched a 5-year low near $3.82 in early trade.

Prior to today’s ASX open, the telco giant announced lower profit numbers and a reduction of the current year dividend from 31 cents to 22 cents.

In addition to the ordinary dividend next year, Telstra chief, Andy Penn also announced that the company would return up to 75% of one-off NBN receipts to shareholders via fully-franked special dividends over the next 12 months.

Further, Mr Penn gave an overview of the potential to monetize its NBN payments to support a “capital management” plan to “enhance shareholder returns”, most likely through a series of share buy backs.

With Telstra shares trading at $4.20, a 22 cent yearly total dividend pencils out to a 5.2% yield plus franking credits.

Our base case is that the domestic telco technology sector will continue to show above trend growth relative to peer sectors.

We expect Telstra’s leaner business model will contribute to the company’s profit potential over the next year.

We consider the share price oversold relative to fundamentals and prefer the long side from these levels.

Telstra

Telstra will announce its earnings report this Thursday, August 17th.

The Telco giant is expected to maintain its 15.5 cents per share dividend, which will take its FY 2017 total dividend to 31 cents per share.

At the current share price of $4.15, this pencils out to a dividend yield of 7.4%, which is respectable in the current market environment.

Some analysts expect TLS to cut their dividend guidance into 2018 as the government cuts the NBN related payments, and may rule unfavorably on the unsettled bandwidth sharing plan.

However, considering the share price has dropped over $1.00 since the beginning of the year, and the recent price action has shown good support at $4.00, we consider the risk asymmetrical to the topside over the medium term.

As such, we view TLS as a good dividend play with a medium-term target of $4.80.

Telstra

Telstra should push higher into the top end of the trading band, as shown on the chart below.

Yield hungry investors buying TLS for the compelling 7% fully franked dividend, will likely push the share price higher, before running into resistance at $4.80.

The last Algo Engine signal on TLS was a sell signal back in January at $5.25

Telstra shares got a boost today as the ACCC decided against letting rival Telcos roam their regional mobile network at a government fixed price.

Some analysts have estimated that mobile communications contributes about 45% of earnings, or $4.2 billion, in 2017/18. Telstra shares have jump by over 4% to reach $4.45 in early trade.

On April 20th, we wrote a blog piece about how TLS at $4.00 per share represented close to an 8% yield on their 15.5 cent dividend. We see value in the stock up to $4.50 keeping the forward yield in the 7.00% area.

Shares of Telstra have dropped close to 15% over the last month. When the shares traded at $4.00 on Tuesday, this was the lowest price since October 2012.

While some of the pricing fundamentals may be unclear going forward, from a pure yield perspective, we see the potential for value.

At current prices, if TLS matches it’s previous dividend of 15.5 cents in September, this puts the stock on a forward yield of over 8%; plus franking credits.

We consider this good value and like the long side of TLS for a move back over $4.50 in the medium-term.

 Telstra