Daily ShareChat: Telstra

By Jenny Ruth

Thursday 7th October 2010

Telstra Corp. will have a tough time convincing sceptics "that this time it is different" in delivering its "Project New" which follows its 2005 "Transformation" program, says Peter Warnes, an analyst at Aegis Equities Research, which is owned by Morningstar.

"Nothing new - heard it all before - same old, same old - promises, promises," Warnes says. "One either believes or disbelieves or is somewhere in the middle. We sit right of centre with a believer bias," he says.

Doing nothing isn't an option and "at last management is listening to front-of-house staff - those at the customer coal face."

Project New aims to improve customer service, retention and growth in customers and to simplify the business and is service oriented rather than aimed at cutting costs.

"Management is willing to sacrifice EBITDA (earnings before interest, tax, depreciation and amortisation) margin to get EBITDA growth. Driving EBITDA growth is paramount in growing the business. But growth cannnot occur without delivering service at the core," Warnes says.

While the sharp deterioration in the share price suggests Telstra should be a strong "buy," it still has operational and execution hurdles to clear.

However, comments that cashflow forecasts will allow payment of a 2011 dividend of 28 cents per share fully franked, should the board elect to do so, are reassuring, he says.

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