In Brief: Telstra Group, Duratec, South32

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In Brief this week highlights how technology, defence and the energy transition are challenging incumbents while creating new growth opportunities.

• Is Telstra's mobile dominance up for new challenges?
• Duratec builds momentum through defence contracts
• South32 outlines its fast growth ambition

By Danielle Ecuyer

This week’s quote comes from Oxford Economics:

“The minutes of the Federal Open Market Committee (FOMC) meeting highlighted how inflation has become the dominant concern at the central bank.

“Higher energy prices and other input cost pressures owing to the US-Iran conflict, as well as AI-related price pressures, were repeatedly cited as the main threats to price stability.

“Amid elevated inflation risks, alongside lower downside risks to the labor market, a few officials stated that they could have backed an interest-rate increase in June but still supported maintaining rates on hold.”

How secure are Telstra’s future earnings?

Telcos might be considered somewhat boring and reliable, but the listing of SpaceX, together with the risks associated with satellite direct-to-device (D2D) technology and its potential impact on incumbent mobile carriers, has analysts aflutter.

Jarden downgraded Telstra Group ((TLS)) to Underweight from Neutral this week, arguing the behemoth’s supremacy in mobile, and the market’s expectation that the division deserves an almost annuity-like valuation, will be challenged.

As articulated by the analyst, the market views Telstra’s mobile earnings as “largely uncontested”. Valuation models assume mobile earnings will continue to grow steadily into the next decade.

Jarden estimates Telstra’s postpaid customer lifetime value at around $3,166, approximately 40% above the peer average, reflecting the premium investors ascribe to the telco’s dominant mobile market position.

Jarden estimates the pricing premium associated with Telstra’s superior network coverage equates to around $9.7bn of mobile EBITDA, or approximately 12% of mobile earnings. Telstra continues to enjoy the broadest mobile coverage relative to Optus and TPG Telecom.

The emergence of satellite direct-to-device services and the Federal Government’s proposed Universal Outdoor Mobile Obligation represent a longer-term risk to expectations of Telstra’s coverage superiority.

According to Jarden, the premium valuation ascribed to the stock rests heavily on that competitive advantage. If coverage becomes less differentiated, investors are likely to demand a higher earnings yield, reducing the present value of future cash flows.

Unlike some analysts, who argue satellite technology will create widespread disruption for incumbent operators, Jarden believes the impact will be more limited because satellite networks have significantly lower capacity in densely populated areas.

Satellite communications provide around four to five times less capacity than terrestrial networks in populated regions.

Nevertheless, assuming some erosion of Telstra’s competitive advantage at the margin, Jarden lowered its longer-term earnings forecasts by -3% and reduced its terminal growth assumption by -5%.

While near-term earnings forecasts remain unchanged, Jarden believes investors will assign a lower valuation multiple as the market prices in greater long-term competitive risk.

The target price falls to $4.60 from $5.05, representing a -9% reduction.

Sizeable infrastructure and defence spending builds order book

Engineering, construction and remediation contractor Duratec ((DUR)) was in focus this week at Shaw and Partners, with the contractor entering FY27 with an order book of around $636m, a rise of 59% from February 2026.

Between February 23 and June 30, the company secured contracts worth $370m and failed to secure around $250m in contracts.

As of February 23, Duratec had tenders worth $1.8bn, which suggests, on the analyst’s estimates, the balance of the tenders stood at $1.2bn at the end of June.

Shaw forecasts around $875m in tenders will be finalised in 2H2026 and around $305m in 2027.

Breaking down the tender book, three contracts have an estimated value of more than $100m.

Infrastructure upgrades at HMAS Stirling comprise a $281m contract under a Duratec-Ertech joint venture to support future submarine capabilities. Duratec has a 50% revenue share.

The joint venture is tendering for additional work worth $260m in total for the Controlled Industrial Facility and the Landside Licensed Facilities. This contract is expected to be awarded in 2027.

Management is also believed to be tendering for fuel farms, bulk storage, fuel transfer systems and infrastructure worth around $127m under the National Defence Fuels Transformation Program. That tender is expected to be awarded in 2H2026.

Comparing the broker’s earnings forecasts with consensus estimates, revenue forecasts for FY26, FY27 and FY28 are within 1.5% of consensus. Earnings (EBITDA) for FY26 are -6% below consensus and FY28 is -5% below consensus.

The difference is at the margin — literally.

A change in the revenue mix is anticipated to underpin a slight decline in the earnings (EBITDA) margin to 9.7% from 10% over FY26-FY28, whereas consensus forecasts a 40 basis point margin increase.

This potentially infers upside to earnings (EBITDA) forecasts from new major tenders or a better tender conversion rate.

The stock is rated Buy with a target price of $3.10.

South32 targets fast growth 

At an inaugural sell-side roundtable, South32 ((S32)) CEO Graham Kerr, incoming CEO Matt Daley and CFO Sandy Sibenaler presented.

Barrenjoey notes, as detailed by Daley, South32 has positioned itself as a fast-growing base metals company, targeting 55% growth in copper-equivalent terms by around 2030.

The Hermosa project in Arizona, including the Taylor zinc, lead and silver deposit and the Peake copper, zinc and silver deposit, remains the key execution risk to achieving that target.

Permits from the state and Federal governments have been received to build and operate the initial Taylor mine, including scope to extend the project’s life. However, an increase in processing capacity would require an amendment to the permits, the analyst points out.

New Federal permits would facilitate the construction of a second tailings storage facility (TSF) and a permanent transmission line.

The Clark decline, an underground access tunnel driven from the surface, will allow South32 to increase production capacity to 5.5m tonnes per annum from 4.3m tonnes per annum and de-risk the project.

First ore is expected to come from the decline rather than the shaft. With the same contractor involved across all four surface packages (works), scheduling remains the principal execution risk. Management has secured a contingency of around US$230m to cover both scheduling risks and potential inflationary impacts.

Hermosa’s Peake deposit, which contains more copper than Taylor, could add another five-to-six years of mine life, by adding a modest copper processing circuit. This would also improve the project’s economics.

Notably, the orebody remains open, and the Federal permits allow additional drilling at Taylor and Peake, which could increase the project’s value in the future without the need to recommence the Federal permitting process.

The South32-Alcoa ((AAI)) deal is subject to shareholder approval, as well as ACCC and FIRB approvals. In South Africa, approvals include the National Treasury and Competition Commission.

South32 believes Alcoa is well positioned to secure these approvals under the Trump Administration.

Following the sale of the aluminium assets, the target is to change the minimum 40% dividend policy. The company also has franking capacity to return around US$1.6bn of capital.

The broker also points out South32 will reconsider its exchange listings across the ASX, LSE and JSE on completion of the deal. The LSE listing appears to be the one under review.

The Mozambique Government is interested in acquiring Mozal from South32, an asset equivalent to around 3.8% of Mozambique’s GDP, with the two parties currently in discussions.

Manganese is not considered a core asset, so there will be no further investment in new capacity or growth. A potential sale would require consent from Anglo American.

Barrenjoey has an Overweight rating and a target price of $5.00.

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