Global markets were mostly lower on Friday on the back of mixed economic data and as US stimulus talks remain in a stalemate.
Reports that a scheduled review of the US-China Phase-One trade deal had been delayed didn’t hurt sentiment. US-China tensions remain in the headlines as President Trump said on Saturday that he was considering banning Alibaba and other Chinese companies from the US. His comments come ahead of the banning of Chinese apps like TokTok and WeChat from the US. We expect trade will remain in focus as we head into the US Presidential election in November.
Closer to home, NZ lockdown extension measures were announced that were largely "as expected", and the NZX has opened higher this morning. With the ASX market reaction to Melbourne a good case study, our view is that the NZX is currently pricing in a short lockdown, but clearly if there is a material escalation in cases/lockdown extension then lockdown sensitive stocks could come under further pressure.
Telstra (TLS:ASX / TLS:NZX)
Shares of telco business Telstra (TLS) fell sharply after a somewhat mixed result for the 2020 financial year, delivering net profit after tax of $1.839 billion which fell -14% from last year but was largely in line with guidance. More importantly, Tesltra managed to keep their 2020 dividend flat at 16 cents per share.
However, TLS provided weak guidance for the 2021 financial year assuming covid-19 will have a $400m hit on earnings which likely spooked investors.
The defensive nature of its core mobile earnings should support and help weather economic uncertainty, despite some near-term pain. Competition in the mobile sector is likely to be more subdued given the TPG and Vodafone merger means there are now three major competitors as opposed to four. Telstra are also ahead of peers with 5G investment (which are encumbered with Huawei technology) which is expected to be the next leg of growth for the sector.
We remain comfortable with our BUY recommendation on Telstra at its current valuation as it offers an attractive dividend yield of 5% (with a limited risk of being cut in our view) and while facing a challenging year ahead we see upside over the medium-term from 5G rollout.