Telstra dives on weak result…
Index options expiry this morning and traders squeezed it up early to force a settlement of 5829 which was just 3 points off the high of the day before sellers came in to push the index down to a 11.30am low before grinding higher into the close. 7 of the last 8 trading days have been positive for the ASX and despite a very weak performance from Telstra which took 13 points off the index, we still managed to close in the black. That said, the mkt is clearly finding is more challenging when above 5800 and there was some obvious indecision today.
We saw a range of +/- 44 points, a high of 5833, a low of 5789 and a close of 5816, up +7pts or +0.12%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Another BIG day on the reporting front headlined by Telstra (TLS) which disappointed and was sold off by -6.55% to close at $4.85. They dropped sharply on open, tried to recover but another wave of selling hit the stock in the afternoon session and that dragged down the other Telco’s as well.
Telstra (TLS) Daily chart
The issue with TLS was in its top line trends, or in other words it has very sluggish growth due to weakness in data & mobiles which is obviously a poor read through for TPG & Vocus. Mobile service revenue declined by -9.8% with lower margins (40.9% versus 45.9%) as they cut prices to be more competitive while data & IP revenues were down by -4.2%. TLS a big cumbersome beast and they managed to do very well in reducing costs which meant that overall earnings were ok. They also maintained guidance saying income will be at the low end of the guidance range for the full year.
Earnings per share for TLS came in (on a normalised basis) at 14.8cps, while they paid a 15.5cps dividend, they’re borrowing to pay the dividend to the tune of about $1bn per year. They can afford to do it given the lumpy NBN payments totalling about $11bn being paid over the next few years however it obviously highlights the challenges currently faced by the Telco. The NBN payments inflate earnings but the bulk of them end in 2020. Telstra need to reinvest that capital elsewhere to drive future growth, and therein lies the risk (or the opportunity). The market is getting very negative Telstra, and we have been negative for a long time, but there will be a time to step up and BUY this stock…we’re starting to see some blood on the streets! We do not own Telstra (yet)
Star Entertainment (SGR); A decent result from Star and better overall than the market was positioned for in our opinion. All the things that were expected to hit earnings did, with the Crown debacle hurting VIP and the renovations to Star in Sydney also having a negative impact. That said, guidance was good and trends in the last few months have been positive. This is business that is worth buying into negativity - the clouds will pass and there is a very strong earnings stream underpinning this company. The stock closed up +0.4% to $5.04.
Star Entertainment (SGR) Daily Chart
We’ve included yesterdays results (15th Feb) and today’s (Feb 16)
Have a great night,
The Market Matters Team
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