Treasure Chest: Telstra Group

Treasure Chest | 2:02 PM

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is Telstra Group.

By Mark Woodruff

Whose Idea Is It?

Citi, Ord Minnett and Barrenjoey

The subject:

Following underperformance against the ASX50 of respectively -13% and -10% over the past three and six months, shares in Telstra Group ((TLS)) have bounced off a 52-week low of $4.56.

Several brokers now see an undervalued share price offering dividend upside along with ongoing share buybacks.

Barrenjoey suggests Telstra’s dividend yield provides downside protection, with further support from potential dividend reinvestment and capital management.

While satellite competition remains an overhang, Barrenjoey considers Australia structurally different from the US and sees limited risk of direct substitution for mobile services.

Similarly, Ord Minnett believes the outlook for mobile remains supportive, with 1H27 expected to improve seasonally and industry competition remaining disciplined.

Recent Optus commentary suggests to the latter analyst that the focus remains on pricing and profitability rather than aggressive market share gains.

Over at Citi, the analysts see upside risk to the consensus earnings estimate from stronger cost control. Citi expects mobile services revenue to grow by 5% in FY27, with potential upside from higher average revenue per user (ARPU).

While earnings forecasts are largely left unchanged, all three brokers have upgraded their ratings to Buy-equivalents this week.

Telstra is relatively defensive in a softer economic environment, Citi suggests, despite the headwind from rising bond yields.

Key risks, according to this broker, include the ACCC mobile roaming review and potential medium-term pressure on mobile pricing from satellite competition.

Shares are trading at $4.74 in the afternoon of September 3.

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