Reports: Telstra Shares Surge On Better Performance

Suddenly the same analysts and 'experts' who have been negative on Telstra, are fans after the company reported a smaller than expected fall in earnings for the year to June 30; a result that included rising revenues and profits from mobile phones and telecoms.

There's nothing like a bit of outperformance to make fools of so-called expert analysts who think short-term and do their analysis via computer models.

Telstra said yesterday that 2010-11 net profit dropped 16.8% to $3.23 billion, from the $3.88 billion earned the previous year.

Analysts had expected a net profit of $3.097 billion.

As a result, the shares surged in yesterday's volatile trading, jumping 5.6% to a close of $2.99, up 15c, after touching a high of $3.015 in trading.

That's the strongest for Telstra shares in three years.

The news helped the company's share price recover much of the losses incurred in the silly sell-offs earlier in the week.

The wider market recovered ground yesterday after being down by around 1.4% to end about steady on the day.

Helping Telstra stand out was Singapore Telecommunications, which owns rival Optus in Australia.

Its shares fell 5c to $2.33 after Optus posted a 5% fall in quarterly profit.

Telstra declared a fully-franked final dividend of 14c, taking the full year payout to 28c, in line with the previous year, a payment that will absorb more than $3.4 billion, or more than the company's net profit.

And management hinted that the company would look at capital management ideas later this year.

Directors said in commentary that, "Telstra has exceeded its guidance for fiscal 2011 and maintained its dividend.

"In addition, the business is seeing the benefits of the significant strategic initiatives implemented over the last year with all of Telstra's major retail business units reporting revenue growth, offsetting the decline in revenues in Telstra Wholesale."

Revenue increased by 0.7% (just %176 million) to $25.09 billion, in line with previous guidance.

Pre-tax earnings were $10.15 billion, down 6.4% from $10.85 billion in the previous year.

Telstra said for the year ahead earnings before interest tax, depreciation and amortisation would register low single-digit growth.

The core of the strong change in sentiment towards Telstra were more signs that the revamp, especially in mobile, was paying off.

"Domestic Mobile revenue growth accelerated during the year to 10.7% as we began to see the benefits of growing our domestic customer base by 1.66 million services.

"In the second half mobile growth was 11.4%, improving from 10.0% in the first half.

"The improved momentum is testament to our network quality and the increased value of our mobile plans.

"Mobile services revenue grew by 7.4% while mobile hardware revenue was up 35.5% to $1,160 million.

"Our Network Applications and Services (NAS) revenue grew 10.7% this year to $1,144 million and remains a strategic growth driver for Telstra.

"This was driven by strong growth in unified communications and managed data networks, "directors said.

Telstra said it added three new customers for every new one acquired by Optus as both groups benefited from the exodus from Vodafone Hutchison Australia, which lost 375,000 mobile customers in the June half year because of technical problems and poor network security.

Telstra chief financial officer John Stanhope said the new mobile customer acquisition strategy had been profitable, with margins rising to 32% after falling to 29% in the first half of the year.

Telstra said postpaid mobile customers increased by 11% to 6.46 million, and mobile broadband customers rose by 55% to 2.58 million.

And the company's total retail mobile customer base was up 16% to 12.2 million.

So it was no wonder that CEO David Thodey said Telstra had one of its best ever years in attracting customers.

"We have always acknowledged the need to translate our 2011 initiatives into tangible financial benefits, so we are pleased with the results in the second half of this year and expect that momentum to continue in 2012," Mr Thodey said in yesterday's statement.

"Telstra's long-term strategy to win customers, improve customer satisfaction, simplify the company and develop growth businesses remains on track, putting us in a strong position as the National Broadband Network rolls out," he said.

In June, the Australian government and Telstra agreed an $11 billion deal to use Telstra's fixed line phone assets as the basis for its National Broadband Network, the country's biggest infrastructure project in decades.

That will gradually see a poor performing business exited.

The Telstra report shows that this business saw a 7.9% fall in revenue for the year to June, less usage and less lines.

Telstra said there would be no material impact from the NBN in the year to June 2012.

Chief financial officer John Stanhope told analysts the forecast for up to 5% growth next financial year took a "conservative" outlook to the economy but did not ''assume a catastrophic event''.

Mr Thodey added the guidance was ''prudent''.

Shareholders will get to vote on the deal with NBN Co at the annual meeting on October 18, even if the ACCC has not yet approved the structural separation undertaking.

(That undertaking was recently submitted to the Commission and must be approved by December 20 or the deal falls apart.)

Mr Thodey warned there would be more redundancies this financial year as Telstra continues to cut costs.

In a letter to shareholders late yesterday Telstra repeated its positive outlook comments:

"In fiscal 2012, the strategic initiatives will continue to bear fruit. The year will see productivity and other benefits from a continuing simplification programme.

"For fiscal 2012, the company expects to return to full year earnings growth with low single digit revenue growth and low single digit EBITDA growth on the back of strong second half performance in fiscal 2011.

"Capex to sales will continue to be around 14% of sales with free cashflow of between $4.5 and $5.0 billion. The NBN is not expected to have a material impact on Telstra's financial results in 2012.

"As announced in November 2010, it is also the company's intention to maintain a 28 cents fully franked dividend for fiscal 2012, subject to the Board's normal process for dividend declaration and there being no unexpected material events.

"The directors also remain committed to a broader review of capital management after shareholders have voted on our proposed participation in the rollout of the NBN and subject to global financial market conditions."

Meanwhile Optus management seemed content with the 5% fall in quarterly profit, describing the result as "resilient" amid intense competition.

Apart from a one-off cost due to workforce restructuring, Optus says underlying profit was up 2.5% to $174 million on a 3% rise in operating revenue.

"Against the backdrop of a highly competitive Australian telecommunications market with competitors discounting prices and sacrificing profits, Optus delivered resilient results, "Optus chief executive Paul O'Sullivan said in a statement.

Optus said its mobile revenue rose 5% in the quarter, and revenue in its business and wholesale and consumer and SMB segments was stable.