Technology is Andy Penn’s friend as he tries to build Telstra momentum

Telstra’s plan to split infrastructure assets builds on a long-running trend in the industry. Picture: AAP

In Andy Penn’s five years as chief executive, Telstra’s stock has underperformed the market by 72 per cent, earnings have fallen 15 per cent and revenue has fallen close to $1bn to $26.2bn.

His time in the chair has come as NBN rolled out, taking with it Telstra’s monopoly earnings on its copper network, and to his credit he has pulled whatever levers he has to try to create positive momentum.

So far he has failed but the market took some comfort from the latest efforts, starting with the fact earnings guidance was affirmed in the middle of a recession.

Technology will be Penn’s friend and 5G represents a huge boost amid the first recession in 30 years, but at Thursday’s strategy day there was more shuffling of the decks than actual evidence of a rebound in earnings.

The fact is Penn is nearer the end of his term than the beginning and would obviously prefer to go out on a high.

At some a point the board and/or shareholders will want to see some evidence of change.

The latest effort is aimed at unearthing value hidden in the company to boost returns, and through the increased transparency improve the discipline around the assets.

Penn threw in some adjacencies to add some blue sky through the likes of Telstra Health and a proposed push into reselling energy.

He comes to the table with clear advantages in 5G infrastructure, backed by $1bn a year in NBN payments to compensate for the Telstra ducts and equipment the national network uses.

Inevitably the infrastructure split resulted in speculation the company is preparing to buy back the farm by marrying the infrastructure assets with the NBN.

This won’t happen any time soon. Instead as Penn made clear the aim is to increase the transparency around the assets to provide more discipline on their operation.

The good news was rival Optus reported a loss, because while COVID has fast-forwarded the digital revolution it came with significant lost business, with the travel sector grounded and collateral damage included highly profitable mobile roaming charges.

Telstra did confirm 2021 forecasts, which are for more earnings falls, but said the 2022 year would return growth to the empire.

Telstra chief executive officer Andy Penn. Picture: AFP

The headline-hogging split of the infrastructure assets builds on a long-running trend in the industry, with the aim of increasing transparency around assets and developing more discipline about maximising returns.

Telstra is not the first to walk down this road, but that said, it is also exactly the right path for Penn to take.

The mobile phone assets earn around $200m a year, which at the going multiple of 20 times converts to $4bn in value.

The challenge might be on growth, given Vodafone and Optus already have a mobile phone tower joint venture, but given Telstra has been closed-minded on offering capacity to competitors, the sale of this asset next year actually promises a boost to competition.

The strategy session had the feel of a grand asset shuffle in an attempt to generate some momentum and add value to a suite of assets that generate high margins downstream from the cutthroat consumer end of the market.

Next year Penn will start selling gas and electricity to customers, leveraging his customer base, and make significant inroads into power-purchasing agreements as part of his sustainability push.

Energy resales are not revolutionary, with rival Vocus well into the game through Dodo. Origin sells broadband and AGL also has its own small telecoms arm.

The convergence game is a long-running trend built around ownership of customers and a push to hang on to as many as you can buy, bundling low-margin products from gas to broadband so you become hitched to Telstra.

Penn also talked about a seven-year-old allied business, Telstra Health, which is aimed at leveraging its telecoms delivery.

The government may one day want to sell the NBN, but considerable hurdles need to be passed before the old Telstra is put back together.

The company buying the NBN will need to be separate from Telstra in ownership and governance and have no incentive or ability to favour Telstra. The question then is the incentive to do the deal — except if you are the NBN paying Telstra $1bn a year in rental payments for the rest of your life and see benefits of a merger.

Governments created the behemoth to maximise its privatisation returns and no doubt short-sighted politicians might be tempted to change the rules again.

But the fact is the industry has also moved on and Telstra for one sees considerably more upside from its 5G potential.

The T22 strategy was about simplifying the company, including slashing mobile phone plans from 1800 to 20 and taking out 7300 jobs.

When COVID hit Penn stopped the job cuts, with some 75 per cent of the program already finished, which means 1600 more jobs will go from February next year.

As more big companies do the same thing, the fiscal cliff everyone talks about when the government handouts stop in the first quarter takes on a whole new dimension.

Energetic Fortescue

FMG’s energy push is being welcomed by the sector but didn’t set the market alight with the stock price down 4.3 per cent to $16.54 a share.

At head office in Perth after the annual meeting sales pitch it is back to business, which means assessing the opportunities as they emerge on the road to decarbonising its business.

This will please AustralianSuper, which yesterday declared its investments will be carbon net neutral by 2050.

Andrew Forrest’s global tour is aimed at looking for new opportunities, which is something you can do when you earn $1bn in dividends every year, and in this case other shareholders should benefit.

This column erred yesterday on his CSIRO joint venture, which is looking at ways of storing and transporting hydrogen through ammonium and other means.

D-day for BNPL

Next week ASIC will release its report into the buy now, pay later sector which hopefully can answer the question of just how the sector has managed to capture investor imagination.

On figures from Mclean Roche’s Grant Halverson there are eight listed vehicles around, including Afterpay, LayBuy and Sezzle in the US which produce annual revenues of $891m, bad debts of $267.8m and combined losses of $396m.

These stocks have a combined market value of $35bn and to date are untouched by anything close to regulations.