Telstra Share Price Rises Despite Downgrade in Earnings

Telstra Corporation Ltd’s [ASX:TLS] share price rose shortly after opening today, despite announcing a $100 million earnings downgrade in their full-year guidance for 2019.

At time of writing, the telco giant’s share price is up 95 cents from yesterday — currently trading at $3.12.

Why has Telstra reduced their earnings guidance?

The reduction in earnings comes after the release of the National Broadband Network (NBN) corporate plan last week. Which revealed underwhelming numbers shifting to NBN, due to slower than expected progress of the NBN rollout.

The revised NBN Corporate Plan revealed 1.2 million premises that were supposed to be declared ready for service this year would be pushed back, as reported by IT News.

As a result, Telstra are expecting their total income to drop by $300 million. While full-year earnings will decrease by a ‘modest’ $100 million.

Telstra said that despite the delay, the changes to the NBN plan will financially benefit the company:

The nbn Corporate Plan 2019 includes lower than previously estimated premises declared Ready for Service (RFS) and premises activated for FY19. This has the effect of deferring Per Subscriber Address Amount (PSAA) receipts from nbn in FY19 into future periods.

This will be partly offset in FY19 by the natural hedge including benefits from lower nbn costs to connect (C2C), lower network payments to nbn and retained wholesale EBITDA.

While the lower volumes impact Telstra’s outlook for FY19, it is anticipated these changes will be financially positive to Telstra over the full rollout due to the effects of the natural hedge.

Why has their share price risen?

It seems despite the bad news, investors are confident that Telstra can continue to absorb the costs of the NBN rollout. Investors will hope the telco can keep it up.

Matt Hibbard,

For Money Morning

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Money Morning Australia