Telstra to Buy Back Stock as Profit Beats Estimates

Telstra Corp., Australia’s largest phone company, will buy back stock after posting annual profit that beat analyst estimates as it consolidated a drive to win customers in the country’s mobile market.

Net income rose 14 percent to A$4.28 billion ($4 billion) in the 12 months ended June, the Melbourne-based company said in today, beating the A$4.2 billion average of eight estimates compiled by Bloomberg. The company will buy back as much as A$1 billion of stock, driving the shares up the most in a year.

Telstra is using its cash to invest in networks to win customers and increase returns to shareholders through buybacks and higher dividends as it prepares to hand over fixed-line operations to a government fiber network. Singapore Telecommunications Ltd.-owned Optus and Vodafone Hutchison Australia Pty. are struggling to lure back customers even after adding fourth-generation services.

“These are solid numbers, it reinforces why you hold Telstra,” said Chris Weston, chief market strategist at IG Ltd. in Melbourne. “They probably had more leverage to go bigger with the buyback given the cash flow they’ve generated.”

Telstra’s shares rose 2.2 percent to A$5.56 at the close of trade in Sydney. The stock has gained 5.9 percent this year compared with a 3.7 percent rise in the benchmark S&P/ASX 200 index.

Telstra’s dividend, which was raised in February for the first time since 2006 to 14.5 cents per share, will be lifted again to 15 cents at the year-end, the company said.

Asset Sales

For the current year, Telstra is forecasting “broadly flat” income and earnings before interest, tax, depreciation and amortization. Free cash flow will be between A$4.6 billion and A$5.1 billion with capital spending of about 14 percent of sales, the company said.

The business has received funds during the year from selling assets including stakes in Hong Kong-based mobile carrier CSL New World Mobility Ltd. and domestic phone directories business Sensis.

Telstra has signed up more than 4 million new mobile customers in the three previous financial years. About 198,000 mobile users were added in the second-half, less than a third the pace of growth in every six month period since June 2010.

“We’re still taking market share and the mobile business continues to perform strongly,” Andy Penn, Chief Financial Officer, said in a phone interview after the results. Once lost earnings from the sale of its CSL unit are removed, “our business is continuing to grow at the rate at which it has grown,” he said.

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