The share price of Australian telecommunications giant Telstra Corporation Ltd [ASX:TLS] has taken a nosedive by over 5% today, on the back of deeper cost cutting drives.
Telstra made an announcement this morning, indicating plans to restructure its business in order to make better use of its infrastructure assets. Other measures included letting go of 8000 staff, to help squeeze in an extra $1 billion in savings.
The share price is currently sitting at $2.75.
What caused the drop?
A downward spiral has been in motion for some time now; investors would have been waiting with bated breath to see how Telstra’s chief executive Andy Penn was planning to turn things around.
After a de-rating of the stock left it at the bottom of the share price performance table for blue chip stocks, Telstra tried to take the spotlight off its shaky position in an increasingly competitive industry, and shine it on what it could do to protect sustainability in the long-term.
But the market was clearly unimpressed by the news. Some may have been turned off by the high stakes involved in these aggressive times of telco commerce.
In the past, Penn has highlighted problems facing the whole industry, and not just Telstra alone:
‘In the last 12 months alone we have moved from three big players in mobile and fixed to a situation today where we face a fourth entrant network operant in mobile, an increasing number of (mobile resellers) and more than 170 resellers of fixed.’
But others may just be concerned about how long it will take for these new changes to deliver. Also demoralising would have been management’s FY19 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $8.7 billion to $9.4 billion — around 15% below some consensus estimates.
What’s next for Telstra?
While Telstra’s capacity for growth is looking grim, a fat, fully-franked dividend may still remain an attractive opportunity for certain sectors of the market.
Telstra is popular for its regular dividend payments, and has fared well in the past for income-seeking investors. However, the restructuring will surely incur costs before it can reap any savings, and the industry is increasingly rife with technological disruption and ever fiercer competition. If you’re one of the risk-adverse, this morning’s development won’t be particularly encouraging.
I’d say it’s worth checking out Telstra’s announcement in full. If you know your way around emergency business strategy or are willing to do some research into triumphant tales of the past, the opportunity exists to patiently wait out the storm.
If the restructure delivers, there may just be some sunny weather around the bend.
For Money Morning
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