Telstra (ASX:TLS) is an iconic Australian company and one of the largest companies on the ASX. It was previously the government owned monopoly provider of telecommunications, but was privatised and floated in the 1990s through a gradual process of selling instalment receipts that ultimately took over a decade to complete.
Being such a significant company with so many retail investors, there is no shortage of commentary on its operations. Consequently this article will take a fairly narrow focus, digging deeper into the numbers without pontificating on the merits of its strategy.
Firstly, we should note that it is one of the stocks in this year’s NAPS ANZ portfolio, and indeed was carried over from the 2023 portfolio. The Telecoms sector in Australia and New Zealand is very small, with only ten stocks and of those Telstra has consistently had the highest StockRank and still does. The StockRank at the start of the year was 94 and has since declined to 91, mainly on the back of declining momentum as the share price has fallen 8% and analyst’s earnings expectations have also come down.
The Quality score of 96 is the standout. This is on the back of respectable return on equity and return on capital numbers and a decent operating margin. But the biggest driver is the health trend score of 8.
The Bankruptcy Risk, measured by the Z2-score is 2.29, tipping it just into the cautious zone. This is initially surprising given the perception of Telstra as such a blue chip stock.
Telstra is carrying a lot of debt with the book value of liabilities as at 31 December 2023 being $27.8 billion. This compares to the market value of equity of $42 billion, which is 1.4 times higher than liabilities, just short of the desired threshold of 1.44. Also contributing to the high Z-score is the fact that current liabilities exceed current assets by $3.4b. A big component of the calculation is short term borrowings along with contract liabilities and revenue received in advance.
Telstra’s net gearing ratio is 99.4%. In February they issued a further $1.2 billion in bonds. $750m for 10 years with a fixed coupon at 5.65% and $450m for 7.5 years fixed at 5.25%. Proceeds are to be used for…
