Valuecruncher’s mid-point valuation of Telstra Corporation is $4.03 per share with a range between $3.18 and $4.95. The current share price is $4.24.

Key Assumptions

Revenue Growth

Revenue growth has been fluctuating for Telstra due to a 5-year restructuring plan that is currently taking place. Growth rates for the last three periods have been -1.55% (03/04 period), 5.46% (04/05 period) and 2.93% (05/06 period). Telstra expects revenue to grow by 2-2.5% in the next financial period. We have forecasted growth rates of 2%, 2.5%, and 3% for the next three periods, slowly climbing towards terminal growth of 3%.

EBIT Margin

Telstra’s EBIT margins have recently declined from 31% in 2004 and 2005 to 24% in 2006. This is attributed to the movement of the business into newer low-margin products as a result in technological development. Telstra have forecasted EBIT to rise by 2-4% in 2007, corresponding to EBIT margins between 23.8-24.3%. We have forecasted margins to remain at 24% in 2007 and to further decrease to 22% and 20% in 2008 and 2009.

Discount Rate

The discount rate applied is 10% (following the discount rate presented in the ‘Financial Performance & Performance Analysis’ document that Telstra have released.

Terminal Growth

Terminal growth is assumed to be 3%.

Telstra Corporation Valuation