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SYDNEY - Investors will be all ears for an update on the progress of Telstra's five-year overhaul when Australia's biggest telco unveils its first half earnings on Thursday.
But some analysts say the market will be disappointed if a profit upgrade is not forthcoming from the telecoms giant.
Telstra is expected to report up to a 20 per cent decline in earnings before interest and tax (EBIT) for the period, as signalled in November, when it fronts the market on Thursday.
Company head Sol Trujillo told Telstra's annual general meeting last year, the company would take the biggest hit from its transformation programme in fiscal 2007, in terms of operating and capital expenditure.
However, Mr Trujillo tipped EBIT to pick up in the second half, in a range between 37 per cent and 40 per cent.
The forecasts of analysts surveyed by AAP range from A$1.469 ($1.67) billion to A$1.766 billion, with a consensus estimate of about A$1.645 billion.
In the first half of 2005/06, Telstra's net profit fell 10.3 per cent to A$2.14 billion, as customers drifted away from the telco's fixed line services in favour of internet and mobile products.
Fat Prophets senior equities analyst Greg Canavan said the profit result was expected to come in "pretty much" on target, and analysts would be seeking an indication of the strength of the growth drivers of the business.
"I think the bigger thing the market will be looking at is ... the progress on the transformation plan; potentially any comments on the takeup for the next generation network; also some comments on broadband," Mr Canavan said.
He said the market would be wanting greater clarity on the restructure that the company initiated in 2005, including a forecast of when the cost benefits might begin to flow through.
He said despite the public image of Telstra management being offside with a lot of the investment and media community, a change in sentiment was occurring.
"I think there's a begrudging acceptance ... that they're actually doing a pretty decent job," he said.
Shaw Stockbroking's Scott Marshall said analysts were slowly inching up their profit expectations, and tending to expect Telstra to exceed its profit guidance.
"If Telstra doesn't upgrade its (annual) profit guidance, I think the market will be disappointed," Mr Marshall said.
He said any upgrade would be driven by natural conservatism on the part of the Telstra executive 12 months ago, when the massive change was being undertaken, with higher profits supported by factors such as staff cuts, and the inability of Telstra's rivals to grow market share.
"It wouldn't (have been) good for Sol Trujillo to promise the earth and even miss it marginally," he said.
Mr Marshall said the market would want to see that Telstra was taking advantage, in particular, of growth weaknesses in its rival, Optus.
Optus, Australia's number two telco, last week reported a 15 per cent drop in third quarter net profit to A$135 million, as more consumers abandoned fixed line home phones for mobile phone capped-price offers.
Mr Canavan said Telstra was probably in a stronger position than Optus because of its strategy of bundling broadband services, which had slowed the fixed line decline.
"The whole growth story with Telstra is broadband takeup," he said.
"Once you get people locked into that, and locked into the bundled sort of thing, it tend to lock them in to a provider a little more."
But analysts would still be eager to hear how the company planned to replace the revenue from the overall decline in traditional fixed line.
- AAP
