Telstra Sells Majority Stake in Sensis Directories Business

Narrow-moat rated Telstra has agreed to sell a 70% stake in some of the assets of Sensis, its directories and advertising business. The directories and mapping operations of Sensis are the key assets included in the sale. Telstra will realise AUD 454 million from the sale, implying a total value for the assets of AUD 649 million. This implies a fiscal 2014 earnings multiple based on earnings before interest, tax, depreciation and amortisation, or EBITDA, of about 2.4 times. We believe this is a fair outcome given the ongoing structural decline and earnings deterioration within Sensis. Divestment will further strengthen the Telstra balance sheet and provides management with additional capacity to return cash to shareholders. We reiterate our view that a material increase in the dividend may be unlikely given limited excess franking credits.