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End of Penn span as Brady assumes quarterback role at Telstra

Brian Han  |  04 Apr 2022Text size  Decrease  Increase  |  
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ANALYST VIEW / Shareholders should take comfort in Telstra's (ASX: TLS) orderly chief executive succession process. The appointment of chief financial officer Vicki Brady as the new chief from September 2022 ensures a smooth transition, with minimal impact on the group's strategic direction.

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Brady was instrumental in helping to execute the seismic T22 turnaround program, in charge of consumer and small business unit accounting for half of group revenue at that time. Critically, she was also a key architect of the recently unveiled T25 program, one that is geared towards repositioning Telstra as a "growth" company from fiscal 2022, after five years of earnings declines and a big step-down in dividends. It also helps that she is well-known to capital markets, with remarkable patience, particularly dealing with equities market participants.

As for the current chief executive Andy Penn, his time at Telstra should be judged against the backdrop of enormous challenges during the period. Less than three years into his role as chief executive (first appointed in May 2015), Telstra was overwhelmed by structural pressures from the NBN on all things fixed-line and legacy, competitive pressures from peers on all things mobile as 4G matured, cost pressures from every corner within the group due to "bloatiness" and shareholder pressure from the market to maintain the high dividends at that time. Some may argue the consequent T22 reset, cost-out and simplification could have come earlier. But we would prefer to commend Penn for the successful execution of the massively complex transformation−a key precursor that has allowed a more growth-oriented T25 strategy.

We maintain our $4.00 fair value estimate on Telstra, and shares in the narrow-moat-rated group are trading broadly in line with our intrinsic assessment. There may be some management movements and reshuffles in the near term as a result of the chief executive change. However, we believe Telstra's strategic blueprint is firmly intact and the new chief executive Brady is well-qualified and battle-hardened to execute it.

is a senior equity analyst in the equity research team at Morningstar

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