I am running on the assumption that we are already well into the hole and that we will be in the bottom of it by FY19. Now bear with me, guidance seems to suggest EBITDA will decline around 10% and the large amount of depreciation suggests EBIT will fall between 25 - 30% leaving EPS at around 20 - 22 cents this FY. EBITDA on the fixed segment was around 750 million (15% of 5 billion) in FY18 so there is not much fixed EBITDA profit left to lose and management have said the margin is zero, so we have another 750 mil of NBN pain. There are further declines expected for mobile margins and the elimination of the legacy charges and staff redundancies will likely account for the rest of the decline in EBIT which is expected to be substantial as pointed out earlier due to the high amount of depreciation.
Of these four main impacts only the fixed margin issue and redundancies will continue into the FY20 period. Margins on mobiles should also start to improve in FY20 in line with previous history as there was a substantial increase in margins in the mobiles segment for both 3G and the 4G due to both data cost out and the premium first mover status of these networks. I figure 5% margin increase for each (target 50% margin) of cost out and first mover status should add around a billion to mobile EBITDA by 2022 which given the relatively fixed cost of the network should translate to around 6 - 8 cent per share per year by FY22 with only a modest increase beyond then.
The only real standout line items I could on the annual report were an additional 1.1 billion in goods and services purchased which did substantially increase expenses in FY18 leading to lower EBITDA on higher REV. Depreciation has been fairly static for years. So I guess my question is that it definitely looks to me like there is a hole and that we have gone well into it so this would suggest
There has been a substantial drop off in both EBITDA and EBIT from FY14 to FY19 guidance. Here is a comparison in millions which shows the straight figures.
The interesting thing is that on a PE ratio the stock is similarly priced to 2012 when 4G began, mobile margins were faltering back then as well, and even EPS were only marginally above the FY19 forecast.
In the graph below I have plugged my earnings projection (below) and run a MIN, MAX, AVG over the EPS forecast in line with TLS AVG PE ratios over the last ten years.
Obviously this doesn't go right into all the segments and explore all the cost drivers but it does build an overall picture of where I think we are headed. I think Optus is going to fail like they always have but I think TPM is going to really start eating TLS lunch in 2022 and this is just based on how well run the company has been run over the last ten years. Smaller challengers if competent can get much greater growth than large incumbents and this is clear from TPM last ten years:
If you ask me the problem for TPM is that they are a growth outfit with no where left to grow. NBN is decreasing the economic surplus of the fixed segment where they get most of their earnings and they are simply not in the 5G game. When they get in the game, it will certainly be game on
Now hurry up and let me buy a damn 5G phone Telstra, mine has a crack and I don't want to buy another 4G phone
(20min delay)
