AT&T (T) shares moved higher Friday after the group outlined details of its growth strategy ahead of the closing of its $40 billion billion media asset sales to Discovery (DISCA).
AT&T said it sees low single-digit revenue growth in 2023, with adjusted earnings in the region of $2.50 to $2.60 per share, or around $44 billion. The group also reiterated its plan to pay an "attractive" annual dividend of around $8 billion after the close of the WarnerMedia/Discovery deal, a figure that represents a payout ratio of around 40% against its free cash flow forecast of $20 billion.
That payout, AT&T said, will still allow for around $48 billion in new investments as it expands its 5G wireless and fiber interest services as part of its shift towards a 'pure play' telecoms group. It wants to double its fiber network and expand its 5G network to 200 million homes, and sees capital investments of $24 billion this financial year and $20 billion in 2024.
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The AT&T board approved a post-close payout of $1.11 per share last month "to account for the distribution of WarnerMedia to AT&T shareholders , down from a prior payout of $2.08 per share, or around $15 billion.
The move was designed to compensate investors who were hit by news that the payout ratio would be "re-sized" when AT&T agreed to take $43 billion in cash and securities in exchange for its WarnerMedia division, which include one of Hollywood's top studios as well as the streaming giant HBO Max, with Discovery's stable of unscripted programs and channels such as the Food Network last spring.
"We will be a simpler, more focused company with the intent to become America’s best broadband provider. We plan to ramp up investment in our key areas of growth — 5G and fiber," said CEO John Stankey. "And at the same time, we will retain our focus on growing customer relationships, continuously improve our execution to enhance the customer experience and deliver growth and returns for our shareholders."
“Today we are at the dawn of a new age of connectivity, and AT&T is positioned to take advantage of a strong and unique market opportunity that plays into the DNA of our company," he added. "With our assets, skills and valuable customer base, we are ready to deliver as new business models requiring pervasive, high-performance connectivity continue to emerge.”
AT&T shares were marked 1.55% higher in early Friday trading to change hands at $23.54 each.
AT&T decided last month to spin-off its interest in WarnerMedia to shareholders when it closes the Discovery media merger, with shareholders will getting 0.24 WarnerMedia/Discovery shares for each AT&T holding.
The ratio will mean AT&T shareholders will own 71% of the combined group, with the remaining 29% taken-up by Discovery shareholders.
AT&T posted stronger-than-expected fourth-quarter earnings in late January as subscribers to its HBO streaming services neared 74 million, boosting revenues in its WarnerMedia division.
A&T said it had 73.87 million global subscribers to its HBO and HBO Max streaming services, topping its plans for a total of between 70 million and 73 million, as it continues to challenge its larger rival Netflix (NFLX) for new additions. WarnerMedia revenues, where HBO and HBO Max are based, rose 15.4% to $9.9 billion.
A softer-than-expected 2022 outlook for adjusted earnings, which the group sees at $3.10 to $3.15 per share, as well as a 'low single-digit' growth estimate for group revenues, have kept shares in the red for most of the year.
