Business SummaryTelstra Corporation Limited (TLS) is a provider of telecommunications andinformation products and services through its Australian and offshoreoperations. TLS has a range of businesses namely fixed broadband, mobile,data and IP, network application & services (NAS), digital media andinternational.

Telstra Retail: This segment is a provider of telecommunication products,services and solutions across mobiles, fixed and mobile broadband,telephony and Pay TV/IPTV and digital content to consumer and businesscustomers in Australia. It is involved in the operation of inbound andoutbound call centres, Telstra shops (owned and licensed) and the Telstradealership network.

Global Enterprise and Services: This segment operates sales and contractmanagement for business and government customers in Australia andglobally. It operates management of Telstra's networks outside Australia,product management for advanced technology solutions and services,including Data and Internet, protocol (IP) networks and Network Applicationsand Services (NAS) products.

Telstra Operations: This division is involved in overall planning, design,engineering and architecture and construction of Telstra networks,technology and information technology solution; service delivery centre. It is aprovider of certain network services to nbn co under the revised NBNDefinitive Agreements and commercial contracts and a provider of varioustelecommunication services to meet Telstra Universal Service ObligationPerformance Agreement (TUSOPA).

Telstra Wholesale: This segment is a provider of a range oftelecommunication products and services delivered over Telstra networksand associated support systems to other carriers, carriage service providersand internet service providers and a provider of certain network assets andservices to nbn co under the revised NBN Definitive Agreements.

Acquisition: On 2 June 2017, TLS acquired 100% shareholding in Company85 Limited and its wholly owned subsidiary DVS Channel Services Limited.On 30 June 2017, TLS acquired the Hosted Collaboration Solutions businessassets from Inabox Group Limited.

Latest ResearchTwo more years of earnings declines to come

Cost savings still insufficient to offset revenue decline — Earnings shouldcontinue to decline through to FY21e as the full impact of the NBN comesthrough and mobile rebases to remove remaining out-of-bundle charges.The T22 productivity gains will likely only partly offset this throughFY20/21, although we do see scope for growth from FY22 onwards. Wehave upgraded FY19-21e Core EBITDA by 3-7% (higher fixed linemargins) with D&A also cut as TLS reassess asset lives. This leads tolarge upgrades for core EPS (26-56%) with reported EPS

(including NBN one-offs) up 9-19%. This should allow TLS to pay a 14c divin FY20, although we still see 12cps as a sustainable level. We haveraised our TP by 8% to $2.70/share.

For more information see research 18 Feb 2019.

GICS - Telco Services

Telstra Corporation Limited

ASX Code: TLS Price: $3.22 12 Mth Target Price: $2.70 Rating: Sell

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Snapshot

DateMarket Cap.Shares on issue12 Month High12 Month Low

10 March 2019$38,296m11,893.3m$3.48$2.60

RatingRating12 Mth Target Price

Capital GainGross Yield

Implied Total Return

Sell$2.70-15.1%6.3%-8.8%

Investment FundamentalsFYE 30 Jun 2018A 2019F 2020F 2021F

Profit $m 2,532.0 1,683.0 965.0 1,432.0Profit (norm)* $m 2,532.0 1,683.0 965.0 1,432.0

EPS* ¢ 21.0 14.0 8.0 12.0EPS Growth % -25.0 -33.3 -42.9 50.0P/E* x 15.1 22.7 39.8 26.5P/E Relative % 0.0 0.0 0.0 0.0

DPS ¢ 22.0 16.0 14.0 12.0Yield % 6.9 5.0 4.4 3.8Franking % 100.0 100.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Citi estimates

Share Price Chart

Total Return on $10,000 Investment

Profit & Loss ($M)2014A 2015A 2016A 2017A 2018A

Sales Revenue 25,119 25,845 25,834 25,912 25,667Total Revenue ex. Int. 26,296 26,607 27,050 28,205 29,042EBITDA 11,395 10,762 10,947 10,974 10,288Depreciation & Amort. -3,950 -3,983 -4,155 -4,441 -4,470Goodwill Amortisation -- -- -- -- --EBIT 7,445 6,779 6,792 6,533 5,818Net Interest -957 -689 -710 -591 -549Profit Before Tax 6,488 6,090 6,082 5,942 5,269Income Tax -1,679 -1,787 -1,768 -1,910 -1,573Outside Equity Int. -70 -74 -69 17 34Profit after Tax 4,535 4,248 6,262 4,049 3,730Significant Items after Tax -260 -17 -482 -158 -167Reported Profit after Tax 4,275 4,231 5,780 3,891 3,563Preferred Dividends -- -- -- -- --

Cash Flow ($M)2014A 2015A 2016A 2017A 2018A

Receipts from Customers 28,950 29,521 31,163 31,288 31,901Funds from Operations 10,240 9,900 9,984 9,291 9,953Net Operating Cashflow 8,613 8,311 8,133 7,775 8,606Capex -3,762 -5,102 -4,194 -5,321 -4,932Acquisitions & Investments -256 -1,104 -197 -145 -138Sale of Invest. & Subsid. 2,401 8 1,396 285 73Net Investing Cashflow -1,130 -5,692 -2,207 -4,279 -3,911Proceeds from Issues 189 121 -- -- --Dividends Paid -3,567 -3,700 -3,787 -3,736 -3,150Net Financing Cashflow -4,430 -6,882 -3,777 -6,104 -5,015Net Increase Cash 3,053 -4,263 2,149 -2,608 -320Cash at Beginning 2,479 5,527 1,396 3,550 936Exchange Rate Adjust. -5 132 5 -6 4Cash at End 5,527 1,396 3,550 936 620

Ratios and Substantial Shareholders2014A 2015A 2016A 2017A 2018A

Profitability RatiosEBITDA Margin % 45.36 41.64 42.37 42.35 40.08EBIT Margin % 29.64 26.23 26.29 25.21 22.67Net Profit Margin % 18.87 16.36 16.43 15.63 14.53Return on Equity % 34.29 29.99 26.75 27.85 24.82Return on Assets % 14.07 12.04 11.10 10.83 9.73

Debt/Safety RatiosNet Debt/Equity % 73.76 98.13 86.45 112.27 108.71Interest Cover x 7.78 9.84 9.57 11.05 10.60

No Substantial Shareholders

Balance Sheet ($M)2014A 2015A 2016A 2017A 2018A

Cash & Equivalent 5,527 1,396 3,550 938 629Receivables 4,172 4,721 4,737 5,468 5,018Inventories 362 491 557 893 801Other Current Assets 354 362 496 563 629Current Assets 10,438 6,970 9,340 7,862 7,077Prop. Plant & Equipment 19,842 20,450 20,581 21,350 22,108Intangibles 6,382 9,332 9,229 9,558 9,180Other Non-Current Assets 1,327 1,533 1,789 1,602 1,641Non-Current Assets 28,922 33,475 33,946 34,271 35,793Total Assets 39,360 40,445 43,286 42,133 42,870Interest Bearing Debt 15,824 15,634 17,302 17,284 16,951Other Liabilities 9,576 10,301 10,077 10,289 10,905Total Liabilities 25,400 25,935 27,379 27,573 27,856Net Assets 13,960 14,510 15,907 14,560 15,014Share Capital 5,719 5,198 5,167 4,421 4,428Reserves -228 372 62 -105 -117Retained Earnings 8,331 8,533 10,642 10,225 10,716Outside Equity Int. 138 407 36 19 -13Total Shareholders Equity 13,960 14,510 15,907 14,560 15,014

Current Analyst Recommendations *

* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.

Principals & DirectorsPrincipals

Company Secretary Ms Sue Laver

Directors

Dr Nora Lia Scheinkestel(Non-Executive Director)Mr Craig W Dunn(Non-Executive Director)Mr John Patrick Mullen(Non-Executive Director,Non-ExecutiveChairman)Mr Andrew Richard Penn(Chief Executive Officer,Managing Director)Mr Peter Roland Hearl(Non-Executive Director)Ms Margaret (Margie) Leone Seale(Non-Executive Director)Mr Roy H Chestnutt(Non-Executive Director)Mr Niek Jan van Damme(Non-Executive Director)Mr Eelco Blok(Non-Executive Director)

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Telstra Corporation Limited

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