Telstra Corp. Ltd. (ASX:TLS, Financial) (TLSYY, Financial) is Australia's largest telecom and media company. Around 84.6% of the country's population uses the internet. Just pay attention to all those Instagram influencers from Down Under.
From a global perspective, Australia looks like it has the strongest economy with low unemployment, low inflation (~1.0%), solid GDP per capita and a low debt burden. Its credit ratings are AAA across the board according to both Fitch and Standard & Poor’s. In addition, it is growing at about 3% a year.
Telstra released some really exciting news in January by introducing the world’s first Gigabit LTE network, with downloads clocking over 880 megabytes per second. Telstra partnered with infrastructure provider LM Ericsson (ERIC, Financial), chipmaker Qualcomm (QCOM, Financial) and networking vendor Netgear (NTGR, Financial) for the new mobile network.
Emilio Romeo, CEO and managing director of Ericsson in Australia and New Zealand, said the “average time watching video on a smartphone has more than doubled since 2011,” and that “75% of mobile data traffic will be from streaming video by 2022.”
Also in January, Telstra acquired Kloud, a service provider targeting enterprises looking to move to cloud computing, which should help it continue ahead of trends in technology.
In February, the company reported solid half-year results. Here are the highlights from Australia’s most valuable brand.
- Mobile customers grew by 200,000.
- Fixed-line customers grew 124,000.
- $1.5 billion in share buybacks.
- $2.1 billion went to capital expenditures.
The company generates $2.69 billion a year in earnings on $20 billion in sales and, unlike American telecoms, spends less than 75% of its profit on capital expenditures. It also generates much higher profit and return on equity and assets. If you want to buy into Australia, this is the trade.
Despite a market value north of $40 billion, this is a thinly traded stock with less than 100,000 shares changing hands daily on the over-the-counter market. The stock is a little more liquid on the Australian Securities Exchange with 34 million shares traded daily, so keep that in mind if you decide to buy.
At first glance, I am not sure this is a long-term stock for capital gains purposes, but if the dividend remains above 7%, the stock would likely outperform the S&P 500 over the next five and 10 years.
Disclosure: I have no position in any stock mentioned in this article.
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