Telstra's Road to Recovery Paved With Cost-Cut Opportunities

We are confident that narrow-moat-rated Telstra can achieve its AUD 1.5 billion productivity and cost-out program by the end of fiscal 2022. Indeed, the core underlying fixed cost reduction target of AUD 1.3 billion appears conservative, and we estimate that it will amount to AUD 1.5 billion in itself, with another AUD 200 million productivity gains likely to be realised as part of the current incremental AUD 3 billion capital expenditure project. It is not only critical for filling the AUD 3 billion EBITDA hole inflicted by the National Broadband Network, or NBN, but also serves as a litmus test for management credibility. Success on this cost front is paramount to assuaging current market fears regarding dividend sustainability, and will go a long way towards closing the current discount between the stock price and our AUD 4.60 per share fair value estimate.

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