Telstra’s Share Price Still Falling on Massive Restructure

Telstra Corporation’s [ASX:TLS] share price fell by almost 9% last week following the reveal of their Telstra2022 strategy, which will result in 8,000 job losses.

The telecommunications company’s shares instantly dropped 0.5% upon the market opening today. Shares are currently trading at $2.65, which is more than 40% lower than their 52-week high of $4.32

Telstra’s plan to restructure the business and cut costs has failed to restore trust with investors, costing shares 5% of their value on the day of the reveal.

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Why is Telstra’s restructure causing shares to fall?

The restructure is focused on making Telstra smaller and simpler. The telco giant tweeted last week:

Telstra will be smaller and structured to support easier, quicker ways of working so we are agile enough for rapid change.

The plan is made up of four pillars. The first involves cutting the number of mobile plans by 99%. The second is the development of InfraCo, a separate business unit that can be used as an investor after the NBN roll out. They also plan on simplifying their service structure and monetising around $2 billion in assets.

Telstra’s share price continues to fall on concerns that the restructure is simply a short-term fix to a long-term problem. While the overhaul simplifies operations and product offerings, and cuts costs, it still does not identify new sources of revenue.

In the Telstra2022 shareholder letter, the goals of this new strategy are described as ‘tangible and clear milestones’. This does sound quite far from any long-term aspirations or future-improvement.

But the biggest challenge that Telstra seems to be facing, is that some are questioning whether they have what it takes to be anything more than a local telecommunications company.

This uncertainty isn’t helped by the recent overhaul , which points to Telstra failing to take advantage of growth opportunities in emerging products and services.

While there is clear drive to harness the revolutionary power of 5G for their telecom services, Telstra remain vague on the details.

We intend to lead in 5G and we intend to win in 5G’ says CEO Andy Penn in the Telstra 2022 briefing.

He also assured investors that 5G will provide ‘longer-term opportunities for growth, many of which have not even been identified yet.’

There’s little wonder why investors aren’t entirely confident in Telstra’s future success.

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What’s next for Telstra shares?

Despite this doubt, there are signs that Telstra are trying to do the best for the future of the company.

They see the source of their current market challenges as the NBN, because it has meant they’re no longer the wholesale fixed line provider. They understand that significant change in their strategy are necessary.

As for the 30% reduction in labour costs, this will equate to over $2.5 billion in cost cuts over three years. So there is good coming from the bad.

Andy Penn stated:

‘…if we are to grow this company over the longer term…we have to respond to the current market dynamics and their negative impact that the company is experiencing today.

Citi analyst David Kaynes seemed hopeful for Telstra’s future while speaking to the Australian Financial Review, but at the moment it’s all too hazy:

While we agree with [Telstra’s]view that the productivity gains are necessary, we have not been given enough detail on how this will be delivered.

At this stage we give management the benefit of the doubt, with a full $2.5 billion of productivity gains in our forecasts by FY22. However, [Telstra’s]track record does not give us a lot of confidence.

At the moment, the market is just unsure. And when people are unsure, they often pull out.

Time will tell if Telstra can deliver.


Ryan Clarkson-Ledward,
For Markets & Money

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Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:

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