TLS - Telstra Corporation

Bintang · 3 March 2013

Country Lad said:
What constitutes the definition of "Free Cash Flow" seems to be an issue here.

Granted we have to be careful about definitions but I think the real issue is whether or not Telstra can afford to continue paying a dividend of at least 28 cents/share. If I believed Roger Montgomery when he said: "...they end up with free cash flow of about $600 million and their dividend was $1.7 billion ... so they can't afford their dividend. I reckon they are bleeding ..." I might panic and hit the sell button on TLS while the going is good. But where does that $600 million figure come from (?) and whatever it is it is NOT the measure of Telstra's ability to afford its dividend payments. Question: What is a suitable measure?

Mclovin refers to the Telstra reported free cash flow as 'unlevered free cash flow'. I'm happy to use that terminology - after all it is just a label. More importantly I am going to use it as a 'relative measure' of Telstra's ability to pay its dividend.( I'm sure someone is going to object to this but I simply offer it up for discussion.)

So I've looked up Telstra's 'unlevered free cash flow' numbers back to 2002 and compared them to the annual dividend payouts as shown in the attached table. If Roger Montgomery is correct when he says Telstra is "bleeding" [i.e. currently] then it has been bleeding for a long time and from 2002 until 2009 it was bleeding more profusely than it is now - and in 2007 it was haemorrhaging!

craft · 3 March 2013

Telstra is not bleeding cash!

Roger Montgomery is a ........

There is a little bit of economic liquidation going on and if the NBN is going to assist that process through paying to retire the copper all the better. The economic liquidation is more about transitioning and improving efficiency rather than a dying business.

Simply a large and mature company constrained in growth by its size but one that is finally being run not too badly by current management.

McLovin · 3 March 2013

Bintang said:
Mclovin refers to the Telstra reported free cash flow as 'unlevered free cash flow'. I'm happy to use that terminology - after all it is just a label. More importantly I am going to use it as a 'relative measure' of Telstra's ability to pay its dividend.( I'm sure someone is going to object to this but I simply offer it up for discussion.)

If you're purely looking at TLS ability to pay dividends then you should use levered FCF, not unlevered. The more you have to pay in interest the less you have available to pay in dividends. All things being equal if a company is paying more than its levered fcf (and we're including total capex in this calculation not just maintenance capex) in dividends, then it's either increasing its debt or its raising fresh equity. For a large low growth company like TLS that is unsustainable. They are not doing that though.

Bintang · 3 March 2013

McLovin said:
If you're purely looking at TLS ability to pay dividends then you should use levered FCF, not unlevered. The more you have to pay in interest the less you have available to pay in dividends. All things being equal if a company is paying more than its levered fcf (and we're including total capex in this calculation not just maintenance capex) in dividends, then it's either increasing its debt or its raising fresh equity. For a large low growth company like TLS that is unsustainable. They are not doing that though.

In that case Telstra's dividend payout for 2011 and 2012 was about 80% of levered free cash flow and their net financing costs look to be decreasing. That's much better than previous years so I have to conclude that not only is Telstra NOT bleeding cash but it can comfortably pay its dividend. I wonder if there could even be a dividend increase on the horizon?

tinhat · 4 March 2013

Bintang said:
In that case Telstra's dividend payout for 2011 and 2012 was about 80% of levered free cash flow and their net financing costs look to be decreasing. That's much better than previous years so I have to conclude that not only is Telstra NOT bleeding cash but it can comfortably pay its dividend. I wonder if there could even be a dividend increase on the horizon?

I haven't looked into the exact figures, but they gel with what the forecasts were when I made an investment decision to invest in late 2011. I quickly read the most recent Lincoln Indicators analyst report when the half year results came out and I know that if there was not a decent earnings coverage on the dividend (both present and forecast) it would not be in their income preferred stock list.

TLS have bee quite consistent in their guidance since the NBN deal was announced. The extra cash arising from the NBN payments will be paid out as dividends after any capital investments are provisioned for and only once franking credits are available to apply to those increased dividends.

Thank goodness that Sol Trujillo did one useful thing during his disastrous tenure and that was to invest in the 3G network ahead of the shift in the demand curve for data over mobile networking due to smart devices.

Hopefully Telstra can maintain this advantage in the mobile market though staying ahead of the curve. They seem to be fixing their customer relations and billing IT problems which was a big problem for them and they can stem the bleeding from the Sensis business which they have only made worst with failed online strategies (including the Trading Post acquisition).

brianwh · 5 March 2013

Those interested in the likely impact on the value of TLS shares as a result of the Coalitions proposed changes might be interested in this article.

http://www.businessspectator.com.au...mises-m-pd20130305-5H436?OpenDocument&src=sph

alexandro · 12 March 2013

Boggo said:
The first post above was made on 8th of September, it hast gained 10c since then and now we have a target of another 6 months

alexandro, can you show some analysis/qualification/information to substantiate that bold statement or is it just wishful thinking ?

Wow, look at that Boggo, looks like it was not wishful thinking after all. In the 4.00's in 18 months as I wrote back then. People we so critical towards my post on TLS back then.

Looks like my posts on page 52 of the TLS forum were right on the money.

MrBurns · 12 March 2013

Well what's your prediction now ?

Boggo · 13 March 2013

alexandro said:
Wow, look at that Boggo, looks like it was not wishful thinking after all. In the 4.00's in 18 months as I wrote back then. People we so critical towards my post on TLS back then.

Looks like my posts on page 52 of the TLS forum were right on the money.

I replied to your post on this link https://www.aussiestockforums.com/f...t=4270&page=52&p=631738&viewfull=1#post631738

Allow me to demonstrate what I was doing with reality (a couple of charts) while I was responding in a manner that was appropriate to your eloquent dialogue.
Never believe what you read, go with what you can see .

This is my current status...
Bought 10000 TLSIOI on 28/03/2012, have collected two dividends since then and with the current warrant bid price as of today I am up about $10800.00 including dividends.

Waiting now to see what the your outcome was of your analysis especially in light of your comment that I have highlighted in bold above.

(click to expand)

MrBurns · 23 March 2013

Just got my first TLS dividend..........very handy

Muschu · 23 March 2013

MrBurns said:
Just got my first TLS dividend..........very handy

Already spent ours... Average buy price not much above $3. Nice to get it right sometimes..... As for tomorrow, who knows?

MrBurns · 24 March 2013

Muschu said:
Already spent ours... Average buy price not much above $3. Nice to get it right sometimes..... As for tomorrow, who knows?

Bought at $4.07 so no reason to sell... ever... unless it starts to tank for some reason

McLovin · 24 March 2013

MrBurns said:
Bought at $4.07 so no reason to sell... ever... unless it starts to tank for some reason

If your holding period is forever, then you should only worry if the business starts to tank, not the share price.

MrBurns · 24 March 2013

McLovin said:
If your holding period is forever, then you should only worry if the business starts to tank, not the share price.

One would be tied to the other surely.

McLovin · 24 March 2013

MrBurns said:
One would be tied to the other surely.

Of course over the long run that happens, but its share price in the short run can be linked to the market. Market drops 20%, TLS drops with it. Nothing about the business has changed.

If your holding forever, then worry about the business not the share price. At least that's what I do.

MrBurns · 24 March 2013

McLovin said:
Of course over the long run that happens, but its share price in the short run can be linked to the market. Market drops 20%, TLS drops with it. Nothing about the business has changed.

If your holding forever, then worry about the business not the share price. At least that's what I do.

TLS seems to work contrary to the market. market up TLS down and vice versa

MrBurns · 26 March 2013

Seems to be tough going at the moment, trending down generally.

nulla nulla · 26 March 2013

Profit taking before the correction?

MrBurns · 17 April 2013

Now going gangbusters

Julia · 17 April 2013

I've not found any reason in news for the substantial rise today. Anyone know?

TLS - Telstra Corporation

Bintang

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craft

McLovin

Bintang

tinhat

Pocket Calculator Operator

brianwh

alexandro

MrBurns

Boggo

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MrBurns

Muschu

MrBurns

McLovin

MrBurns

McLovin

MrBurns

MrBurns

nulla nulla

Positive Expectancy

MrBurns

Julia

In Memoriam

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