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Telstra tipped to report net profit fall

Telstra is tipped to report a double-digit decline in full year net profit as its year-long bid to capture more customers hits the bottom line.

Telstra is tipped to report a double-digit decline in net profit on Thursday, as its year-long bid to capture more customers eats into the bottom line.

The telco earmarked $1 billion over 2010/11 to expand market share and develop new products and its efforts appeared to pay off big time in February, when it reported more than one million additional customers.

But those new customers helped push down net profit in the first half, as Telstra incurred the cost of new handsets and other mobile devices through subsidies and lower prices.

The nation's largest telco is expected to report net profit for the 12 months to June 30 in the vicinity of $3.134 billion, according to the median of four analysts' estimates gathered by AAP.

If the result prints in line with market forecasts, it would represent a 19.3 per cent drop from $3.883 billion reported in 2009/10.

CBA Institutional Equities analysts Alice Bennett, Nathan Burley and Dominique d'Avrincourt said in a research note that Telstra had delivered "strong subscriber growth" during the first three months of 2010/11.

They said that growth was expected have continued in the fourth quarter, albeit at a slower pace.

"During 1H11 Telstra overspent as a result of strong subscriber growth and associated subsidies," they said in a research note dated August 5.

"Risks exist that Telstra has continued to overspend in 2H11, however this should not necessarily be viewed negatively, depending on growth achieved."

The company's full year guidance was for a high single-digit decline in earnings before interest, tax, depreciation and amortisation (EBITDA), flat sales revenue and a 28 cents per share fully franked dividend.

Telstra said in February that adjusted EBITDA — its preferred measure — fell 12.5 per cent to $4.654 billion in the first half.

UBS analysts Richard Eary, Lauren Moran and Eric Choi said 2010/11 earnings were expected to be affected by higher cost of goods sold, as well as marketing and subsidies costs associated with record customer growth.

They said in a research note dated August 3 that the lower cost of goods sold, lower redundancy costs, and the benefits from Telstra's cost-cutting exercise, Project New, would support improved earnings in 2011/12.

Deutsche Bank research analysts Andrew Anagnostellis and Vikas Gour said in a research note that a shareholder vote on Telstra's participation in the national broadband network was unlikely by October's annual general meeting "due to statutory timeframes".

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More about: AAP, Andrew, CBA, Deutsche Bank, Deutsche Bank, etwork, Telstra

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