Question of the Week

Questions of the Week

Co-founder of the Switzer Report
Print This Post A A A

Question 1: At sub $3 levels, Telstra (TLS) is starting to look attractive. Does TLS now offer growth prospects or is it still a defensive yield play?

I don’t think Telstra offers real growth prospects. They are still addressing the earnings hole due to the role out of the NBN. At its half year result, the CEO did suggest that this year might see the first growth in underlying earnings (excluding the NBN headwind) since 2016. This was revised down following the development of the Covid-19 shutdowns to: “at the bottom end of the range of $0-500 million for growth in underlying EBITDA (excluding the in year NBN headwind)”.

Maybe there’s some long-term opportunity with 5G, but it’s still largely a defensive yield play. UBS has recently cut its dividend forecast from 16c per share to 14c per share. On valuation, Telstra looks attractive. At $3.03, it is 27.2% lower than broker consensus target price of $3.86.

Question 2: What do you think of Webjet (WEB) – will they survive? Buy or not?

Webjet (WEB) has strengthened its balance sheet by completing a capital raising at $1.70 per share. The brokers see value, with a consensus target price of $3.76 – some 66% higher than its current ASX price of around $2.26.

My guess is that while Webjet will survive, there are too many uncertainties in this whole travel/accommodation area. We just don’t know yet what the medium-term disruption impacts might be – particularly changes in consumer/business behaviour. If looking at travel, I prefer a more “pure-play” exposure like Qantas.

Question 3: With the banks likely not to pay dividends, will they be pay distributions on hybrid capital notes such as CBAPF, NABPF and other similar securities?

My guess is that the banks will still want to pay a dividend, albeit at a reduced level. The unknown in the equation will be the reaction of APRA, and whether they will accept the stress testing scenarios that the Bank’s need to pass. A lot will probably also depend on the position of the ANZ. It is the first major bank to report (next Thursday 30 April). If it decides to not pay a dividend, I think that it is more likely that the other majors will follow suit.

This all said, decisions around the interim dividend shouldn’t affect distributions on hybrid securities. These should be paid.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

Also from this edition