---
endpoint: analytics
pattern: Telecoms
status: done
latency_ms: 210866
conversation_id: 40d3ccce-e372-44cc-874b-dd791f8fffe9
citations: 0
created: 2026-05-31 20:09:14Z
---

# What is the investment thesis for Telstra in the current market environment?

# Telstra (TLS-AU) — Investment Thesis in the Current Market Environment

## Source Vintage & Coverage Caveat

The most recent internal research available is **CLSA's "Dreamtime journey" note dated 27 May 2025** (post the FY25 Investor Day; rating: **HOLD**, target price **A$4.10**, implied **-9% TSR** at the time of writing) [1]. Public TFS (Manticore) returns no Telstra-Australia chunks — the bare ticker `TLS` in the public index resolves to Telos Corporation (US), not Telstra. Accordingly, this note synthesizes the CLSA investor-day review as the anchor view. Numbers and views are as of the May-2025 vintage of that note.

---

## 1. Bull Case (Structural Anchor)

CLSA frames Telstra's structural thesis as:

> "Telstra is Australia's leading telecommunications company, with a dominant market share in mobile services. We expect TLS to hold its market share over time, leveraging its superior 5G network, scale and mobile virtual network operator (MVNO) strategy, helping to underpin group earnings growth." [13]

Strategic underpinnings as articulated by management at the FY25 "Connected Future 30" investor day [8]:
- **Customer engagement** — target to grow strategic NPS by **>50% by FY30** and stay among Australia's top 10 brands.
- **Network as a Product (NaaP)** — reframe the network itself as a sellable product, not just a connectivity wrapper.
- **Digital infrastructure** — "Australia's leading digital infrastructure provider" with **mid-teens IRR** on strategic investments and partnerships.

Financial discipline commitments to FY30 [9]:
- **Mid-single-digit CAGR in cash earnings** to FY30.
- **ROIC of 10% by FY30** (up from ~8% currently — i.e., must clear cost of capital).
- Positive operating leverage — underlying income growing faster than costs and BAU capex each year.
- Reaffirmed FY25 underlying EBITDA guidance, with **top end of both FCF and BAU capex** guidance now expected.
- **NAS portfolio divestment** under exploration to simplify the business.

Capital return policy [10]:
- Sustainable and **growing dividend**, with **strong preference for fully franked** (partially franked if franking-constrained).
- Excess capital → **preference for buybacks** over unfranked dividends.

---

## 2. Bear Case (Why CLSA Stays HOLD)

CLSA's central skepticism is whether Telstra can defend its incumbent moat as the industry pivots to software-defined networking:

> "TLS's ability to differentiate its 'core connectivity' offering remains a significant risk to TLS achieving 2030 ROIC targets." [1]

The mechanism: software-defined networks **commoditize ground infrastructure**, narrowing Telstra's historic network lead [3]. Specifically:

- **3rd-party software risk** — "Increasing reliance on 3rd party software positioned as the customer interface… we do not see it as a guaranteed panacea." [2]
- **NaaP / NaaS collision course** — "Increasing adoption of 3rd party software to manage telecom networks dynamically… has the potential to put local incumbents like TLS on a collision course with operators with greater software buying scale." [6]
- **Aduna partnership is not exclusive** — CLSA flags that **Singtel and Vodafone (major TPG shareholder) are also parties** to the Aduna aggregator agreement, making differentiation difficult [7]. Management positioned Aduna as a key new channel-to-market, but if every major telco can plug into the same aggregator, Telstra's "core connectivity" advantage erodes at the customer interface.

---

## 3. Forecasts & Earnings Trajectory

CLSA's headline forecasts (years to 30 June, A$m unless noted) [5][16]:

| Metric | FY23A | FY24A | FY25CL | FY26CL | FY27CL |
|---|---|---|---|---|---|
| Revenue | 23,245 | 23,482 | 23,843 | 24,139 | 24,279 |
| Op EBITDA | 7,863 | 7,528 | 8,616 | 8,980 | 9,036 |
| EBITDA margin (%) | 33.8 | 32.1 | 36.1 | 37.2 | 37.2 |
| Net profit | 1,929 | 1,622 | 2,234 | 2,539 | 2,622 |
| EPS (A¢) | 16.7 | 14.0 | 19.5 | 22.3 | 23.0 |
| EPS growth (% YoY) | 17.8 | (15.9) | 38.6 | 14.5 | 3.4 |
| DPS (A¢) | 17.0 | 18.0 | 19.0 | 21.0 | 22.0 |
| Dividend yield (%) | 3.6 | 3.8 | 4.0 | 4.4 | 4.6 |
| ROE (%) | 12.5 | 10.7 | 15.3 | 17.7 | 18.2 |
| ROIC (%) | 7.3 | 6.4 | 8.2 | 9.2 | 9.5 |
| Capex/sales (%) | 26.5 | 22.4 | 14.7 | 14.8 | 15.7 |
| Net debt/EBITDA (x) | 1.5 | 1.7 | 1.5 | 1.3 | 1.3 |

The earnings story has two distinct features:
- **EBITDA margin step-up** from 32.1% (FY24A) to ~37% (FY26-27CL) [16] — the strongest signal that operating-leverage commitments are credible.
- **Capex intensity collapses** from 26.5% (FY23) to ~15% (FY27CL) [16] — drives the FCF reset and underpins the buyback/dividend story; however, CLSA notes a DCF "faces inherent challenges in accurately predicting mobile spectrum auction costs" [11], meaning the long-tail capex assumption is the key DCF sensitivity.
- CLSA's FY26/FY27/FY28 EPS revisions were marginal at **-0.3% / +3.0% / -1.0%** — largely offsetting lower interest costs and buyback vs. FY25 EBITDA guidance and D&A [4] — i.e., the investor day did not materially change the medium-term earnings outlook.

---

## 4. Valuation Framework

Target price **A$4.10** is built on an equal-weighted blend of SOTP and DCF [12]:

| Methodology | Equity Value/Share (A$) | Weighting |
|---|---|---|
| SOTP (6.4x next-12m EV/EBITDA) | 3.95 | 50% |
| DCF (WACC 6.8%, TGR 1.5%) | 4.21 | 50% |
| Blended target price | **4.10** | 100% |

At the time of the note, the implied **upside/downside was -13.7%**, partially offset by a **5.4% dividend yield**, for a **-8.3% TSR** [12].

Key valuation inputs [11]:
- **6.4x EV/EBITDA** — slightly below the 10-year average of 6.7x; CLSA explicitly takes a discount "reflecting low confidence in the outlook" and "competition and technology risks on the horizon and increased earnings concentration risk to mobile."
- **DCF**: 4.0% risk-free rate, 5.5% ERP, beta 0.75, 7.6% cost of equity, 30% target gearing, **6.8% WACC**, 1.5% terminal growth.

---

## 5. Catalysts & Risks

**Catalysts (next 6-12 months)** [14]:
- Peer results (domestic and offshore).
- LEO satellite / SDN technology updates.
- Macro conditions.
- **FY25 result and FY26 guidance** — the next major data point on whether margin expansion is tracking the investor-day blueprint.

**Upside risks** [15]:
- Stronger mobile ARPU growth and price increases.
- Higher-than-expected mobile share gains.
- EPS-accretive M&A.
- Better cost control and sustained low capex.

**Downside risks** [15]:
- More intense price/product competition in mobile.
- Greater-than-expected legacy product deterioration.
- Adverse regulation.
- Significant capex inflation.
- **Technology risk from LEO satellite or network modernisation** — i.e., the SDN-commoditization thesis materializing.

---

## 6. M&A Discipline (Defensive Framework)

Telstra has set explicit M&A guardrails [10] — relevant because the divestment-focused phase (NAS portfolio) and digital-infrastructure aspiration both carry deal-making risk:

- EPS accretive by Year 2.
- Cash earnings accretive by Year 2.
- ROI above WACC by Year 3.
- More accretive than a buyback (a high bar given the current franked-buyback preference).
- Preference to partner with external/private capital to share risk and access specialist capability.
- Targeting **mid-teens IRR** on strategic investments.

---

## Bottom Line

The current investment thesis on Telstra is a tension between **defensive cash-generation characteristics** — leading mobile share, 5G/MVNO scale, falling capex intensity, EBITDA margin expansion to ~37%, fully franked dividend trajectory with buybacks for excess capital — and **a structural commoditization risk** as SDN/NaaP architectures, non-exclusive aggregators like Aduna, and LEO satellites compress the value of incumbent ground infrastructure.

CLSA's bottom line: the next-twelve-month skew is negative on TSR (~-8%), the FY30 ROIC target of 10% requires "significant self-healing" [1], and the valuation rerating case rests on whether mid-single-digit cash-EBIT growth and ROIC improvement can be delivered against a software-defined competitive backdrop. **Rated HOLD with A$4.10 TP.**

For investors, this translates into:
- **Income angle**: ~4-5% yield with franking + buyback support is the cleanest part of the bull case.
- **Growth angle**: requires belief that Telstra differentiates NaaP beyond what Aduna-style aggregators give to all comers.
- **Watch points**: FY25 result, FY26 guidance, NAS divestment progress, evidence of mobile share defense, and LEO/SDN technology updates.

---

**Sources**
[1] CLSA — Telstra HLD ("Dreamtime journey"), 27 May 2025 (607960654LinqAlpha.PDF) — Significant self-healing required to achieve 2030 goal
[2] CLSA — Telstra HLD, 27 May 2025 — Investor Day highlights, dynamically managed networks not a returns panacea
[3] CLSA — Telstra HLD, 27 May 2025 — Outlook, reiteration of FY25 guidance / software-defined networks
[4] CLSA — Telstra HLD, 27 May 2025 — Key earnings changes
[5] CLSA — Telstra HLD, 27 May 2025 — Financials at a glance table
[6] CLSA — Telstra HLD, 27 May 2025 — Mobile capex and software-defined networks risk
[7] CLSA — Telstra HLD, 27 May 2025 — Aduna not exclusive; Singtel/Vodafone parties
[8] CLSA — Telstra HLD, 27 May 2025 — Connected Future 30 Strategy highlights
[9] CLSA — Telstra HLD, 27 May 2025 — Investor Day financial highlights / ROIC and cash-earnings targets
[10] CLSA — Telstra HLD, 27 May 2025 — Shareholder returns, capital management, M&A guardrails
[11] CLSA — Telstra HLD, 27 May 2025 — Valuation, A$4.10 TP, WACC 6.8%
[12] CLSA — Telstra HLD, 27 May 2025 — Valuation methodology table (SOTP/DCF/blended)
[13] CLSA — Telstra HLD, 27 May 2025 — Investment thesis (mobile share, 5G, MVNO)
[14] CLSA — Telstra HLD, 27 May 2025 — Catalysts
[15] CLSA — Telstra HLD, 27 May 2025 — Upside & downside risks
[16] CLSA — Telstra HLD, 27 May 2025 — Detailed financials table

