---
endpoint: analytics
pattern: Telecoms
status: done
latency_ms: 218698
conversation_id: a92dd648-573b-4935-bc9d-dd0c234cf9ed
citations: 17
created: 2026-05-31 20:54:39Z
---

# What’s the bull case bear case for Telstra?

# Telstra (TLS-AU) — Bull Case vs Bear Case

Telstra is Australia's #1 telco — market cap ~US$35bn, 11.4bn shares, FY ends 30 June [11]. Below is a balanced bull/bear framework drawing on Telstra's own H1 FY26 results filing (released Feb 2026) and CLSA's most recent dedicated coverage note ("Dreamtime journey", 27 May 2025, post-Investor Day). Note: CLSA currently rates Telstra **HOLD** with an A$4.10 target price implying ~-9% TSR / -14% capital downside from May 2025 levels [1][11].

---

## BULL CASE

### 1. Mobile is firing — the cash engine is healthy
- 1H26 mobile services revenue grew **+5.6%**, driven by ARPU expansion and net adds. Mobile EBITDA grew **$93m** as customers continue to choose the Telstra network for its perceived quality and value [14].
- Prepaid handheld revenue +8.6% with a **14.7% ARPU lift**; mobile wholesale revenue **+18.7%** as MVNOs proliferate on the Telstra network; IoT SIOs reached 10.5m (+1.4m YoY) [16].
- This is the high-margin, hard-to-displace flywheel — Telstra's 5G network reach is the structural moat behind these numbers.

### 2. Cash earnings are inflecting up — capital return is rising
- 1H26 reported EBITDAaL **+4.9% to A$4.16bn**, EBIT **+9.2% to A$2.02bn**, NPAT **+8.1% to A$1.20bn**, EPS **+11% to 9.9c**, ROIC **+0.8pp to 8.8%** [12].
- **Underlying** Cash EBIT **+14%** and **Cash EPS +20% to 14.0c** — strong operating leverage [14].
- Interim DPS lifted to **10.5c** (vs 9.5c prior, ~+10.5%), and management has **increased the FY26 on-market buyback from up to A$1bn to up to A$1.25bn** — explicit signal of balance sheet confidence [13].
- CLSA forecasts dividend yield rising from 4.0% (FY25) to **4.6% (FY27)**, with ROE expanding from 15.3% → **18.2%** over the same period [3][9].

### 3. Capex is rolling over — FCF is the under-appreciated story
- CLSA modeling shows capex/sales collapsing from **26.5% in FY23 to 14.7–15.7%** by FY25–FY27, driving **free cash flow from A$637m (FY23) to A$3.6bn (FY27)** — a **5x uplift** [9].
- FY26 BAU capex guidance A$3.2–3.5bn (vs A$1.5bn in 1H — i.e. tracking lower) [15].
- This is a fundamentally different cash-return profile than the heavy-investment Telstra of the prior decade.

### 4. Guidance tightening upward, not downward
- After 1H, management **tightened** FY26 underlying EBITDAaL guidance to **A$8.2–8.4bn** (from prior A$8.15–8.45bn) — narrowing toward the upper half [15].
- Connected Future 30 strategy targets **mid-single-digit cash earnings growth** and **ROIC >10% by 2030** [2].

### 5. Defensive yield asset in a low-growth environment
- Stock has run hard — **+34.6% over 12 months**, +15.6% over 3 months — reflecting the bid for franked-dividend defensives in Australia [4]. Even after the run, **3.6%-pt of TLS's 12M outperformance vs ASX200 is underlying** (24.4pp relative) [4].
- Yield + buyback + ROIC inflection = the textbook "boring stock that compounds" thesis.

---

## BEAR CASE

### 1. Valuation is now stretched after the rally
- CLSA's A$4.10 12-month TP implies **-14% capital downside** and **-9% TSR** from May 2025 levels [11][1].
- CLSA values TLS on **6.4x 12-month forward EV/EBITDA** (slightly below 10-year average) blended with a DCF at A$4.21 — WACC 6.8% reflects **"competition and technology risk"** [7].
- After +34.6% over 12 months [4], you are buying a low-growth utility at a PE of **24.4x (FY25CL)** falling only to 20.6x by FY27CL [3] — limited multiple expansion left.

### 2. Differentiation of "core connectivity" is eroding — the 2030 thesis is at risk
- CLSA's central concern: *"TLS's ability to differentiate its 'core connectivity' offering remains a significant risk to TLS achieving 2030 ROIC targets"* [1]. The 10% 2030 ROIC bridge from today's 8.8% is not a given.
- CLSA explicitly flags: *"increasing adoption of software defined networks to manage telecom networks programmatically may ultimately reduce the relative importance of existing ground infrastructure and gives competition a more equal opportunity at low cost"* [5].
- The "network as a product" (NaaP) narrative is **not a guaranteed panacea**. Reliance on third-party software as the customer interface puts Telstra **"on a collision course with operators with greater software buying scale"** — i.e. global hyperscalers who can outspend domestic incumbents [8].

### 3. Competitive intensity is rising — TPG/Vodafone is back in the game
- CLSA explicitly prefers **TPG (Outperform, A$5.80 TP) over Telstra (Hold, A$4.54)** as their Australian telco pick [10].
- TPG's network-sharing agreement with Optus is **"beginning to improve churn and network connections, including post-paid subscriptions"** and supports repositioning from an inferior signal to a **"highly competitive one"** [10]. The mobile share/ARPU tailwind that has powered Telstra could be peaking.
- The Aduna partnership Telstra trumpeted at its Investor Day is **NOT exclusive** — Singtel and Vodafone (TPG's major shareholder) are also parties to it, so **"it is hard for us to see meaningful opportunities for Telstra to differentiate"** [6].

### 4. Fixed Enterprise remains a drag — the "reset" is open-ended
- Fixed Enterprise income **-4.9% to A$1.61bn** in 1H26, with declines across both DAC (-8.9%) and NAS (-3.8%) — service rationalization, calling-applications decline (-10.6%), equipment sales -10.9% [17].
- Management called out **"further changes proposed last week to continue removing complexity and cost"** — i.e. the restructuring is still live, with execution risk and ongoing redundancy costs flagged in mobile margin commentary [14].
- Fixed Enterprise EBITDA fell A$9m even after the reset [14].

### 5. Income growth is essentially zero — all the optics come from cost-out
- Total income **+0.2%** in 1H26 to A$11.85bn. Underlying operating expenses dropped A$179m (-2.4%), which is what delivered the 3.1pp of positive operating leverage [14].
- CLSA: at full-year run-rate, Cash EBIT growth normalises to **only 5–10%**, not the +14% reported in 1H (lifted by lower 1H capex) [14]. Cost-out has a finite runway.

### 6. Balance sheet still leveraged
- Net debt/equity 75% (FY24A), Net debt/EBITDA ~1.5x [9]. Manageable but not pristine; the buyback expansion adds modest leverage tension if EBITDA growth stalls.

---

## Summary Table — Bull/Bear at a Glance

| Dimension | Bull | Bear |
|---|---|---|
| **Mobile** | Services rev +5.6%, ARPU expansion, EBITDA +$93m [14] | TPG/Optus network share-deal closing the quality gap [10] |
| **Cash earnings** | Cash EBIT +14%, Cash EPS +20% [14] | Inflated by 1H capex phasing; FY guide implies normalisation to 5-10% [14] |
| **Capital return** | Buyback raised to A$1.25bn; DPS +10.5% [13] | Already in the price after +34.6% 12M [4] |
| **Capex/FCF** | Capex/sales 26.5% → 14.7%; FCF 5x to A$3.6bn by FY27 [9] | — |
| **Strategy** | 2030 ROIC >10% target [2] | Software-defined networks erode infra moat; Aduna non-exclusive [5][6] |
| **Valuation** | 4.0–4.6% div yield, ROE 18% by FY27 [3][9] | CLSA TP A$4.10, -14% downside, HOLD [11] |
| **Competitive position** | #1 network, MVNO wholesale flywheel [14][16] | CLSA prefers TPG over TLS in AU telco; Fixed Enterprise -4.9% [10][17] |

---

## CLSA Forecasts — Reference Table (FY Jun)

| A$m / metric | FY23A | FY24A | FY25CL | FY26CL | FY27CL |
|---|---|---|---|---|---|
| Revenue | 23,245 | 23,482 | 23,843 | 24,139 | 24,279 |
| EBITDA | 7,863 | 7,528 | 8,616 | 8,980 | 9,036 |
| EBITDA margin | 33.8% | 32.1% | 36.1% | 37.2% | 37.2% |
| Net profit | 1,929 | 1,622 | 2,234 | 2,539 | 2,622 |
| EPS (A¢) | 16.7 | 14.0 | 19.5 | 22.3 | 23.0 |
| PE (x) | 28.5 | 33.8 | 24.4 | 21.3 | 20.6 |
| Dividend yield | 3.6% | 3.8% | 4.0% | 4.4% | 4.6% |
| FCF (A$m) | 637 | 1,778 | 3,578 | 3,791 | 3,597 |
| Capex/sales | 26.5% | 22.4% | 14.7% | 14.8% | 15.7% |
| ROIC | 7.3% | 6.4% | 8.2% | 9.2% | 9.5% |
| ROE | 12.5% | 10.7% | 15.3% | 17.7% | 18.2% |
| Net debt/Ebitda (x) | 1.5 | 1.7 | 1.5 | 1.3 | 1.3 |

Source: CLSA estimates [3][9]

---

## Net Take

The **bull case** is a durable wireless-led cash compounder with capex rolling off, ROIC stepping up to 10% by 2030, ~4.5% growing yield, and a A$1.25bn buyback — exactly what an Australian institutional yield mandate wants to own.

The **bear case** is that all of this is in the price (+34.6% over 12M [4]), Fixed Enterprise is still being "reset" [17], and the strategic moat (network infrastructure) is being commoditised by software-defined networking and credible competition from TPG-Vodafone-Optus — putting the 2030 ROIC bridge at risk [1][5][8]. CLSA explicitly prefers TPG over TLS at current levels [10].

The market is currently paying for the bull case; CLSA's published view (HOLD, A$4.10 TP, -9% TSR) is that there is more downside than upside from May 2025 levels [1][11].

---

**Sources**
[1] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 — 607960654LinqAlpha.PDF (Hold thesis & TP A$4.10)
[2] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Investor Day: 2030 ROIC >10% target)
[3] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Financials table — FY23A–FY27CL)
[4] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Stock performance +34.6% 12M)
[5] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Software-defined networks risk)
[6] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Aduna not exclusive)
[7] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Valuation methodology — 6.4x EV/EBITDA, DCF)
[8] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (3rd-party software collision course)
[9] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Detailed financials — Capex, FCF, ROIC, leverage)
[10] *TPG — O-PF (Vodafix)* — CLSA, 7 May 2025 — 607958214LinqAlpha.PDF (TPG preferred over TLS; network sharing)
[11] *Telstra — HLD (Dreamtime journey)* — CLSA, 27 May 2025 (Market cap, TP A$4.10, -14% downside)
[12] Telstra Group Limited — H1 2026 Half-Year Report (Reported 1H26 results)
[13] Telstra Group Limited — H1 2026 Half-Year Report (Buyback increase to A$1.25bn)
[14] Telstra Group Limited — H1 2026 Half-Year Report (Underlying EBITDAaL +5.5%, Mobile/Fixed segment commentary)
[15] Telstra Group Limited — H1 2026 Half-Year Report (FY26 guidance tightened to A$8.2–8.4bn)
[16] Telstra Group Limited — H1 2026 Half-Year Report (Mobile product details — prepaid, IoT, wholesale)
[17] Telstra Group Limited — H1 2026 Half-Year Report (Fixed Enterprise decline -4.9%)

## Citations

- [1] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [2] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [3] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [4] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [5] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [6] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [7] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [8] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [9] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [10] **607958214LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607958214LinqAlpha.PDF>
- [11] **607960654LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960654LinqAlpha.PDF>
- [12] **Telstra Group Limited, H1 2026 Report** · external
- [13] **Telstra Group Limited, H1 2026 Report** · external
- [14] **Telstra Group Limited, H1 2026 Report** · external
- [15] **Telstra Group Limited, H1 2026 Report** · external
- [16] **Telstra Group Limited, H1 2026 Report** · external
- [17] **Telstra Group Limited, H1 2026 Report** · external

