Telstra to capitalise on Optus data breach: Macquarie

Telstra (ASX: TLS) is rapidly overturning its long-held reputation as a poorly performing dividend play, with Macquarie the latest broker to take a positive view on its growth prospects. Macquarie upgraded Telstra from NEUTRAL to Outperform in its report on Wednesday.

Optus’ loss is Telstra’s gain

Telstra is expected to have seen substantial growth in subscribers following October’s Optus hack. Questions remain over where the bulk of subscribers will be found - post-paid, pre-paid or wholesale customers.

Telstra traditionally has benefitted from its past as a government-owned monopoly which means it continues to benefit from its extensive infrastructure. It has Australia’s largest mobile coverage and in turn, certain parts of regional Australia are restricted to Telstra as the only viable option for mobile and data.

Despite charging a premium, Telstra largely maintains its customer base through incentive packages such as access to Foxtel or Binge with post-paid mobile accounts. It has also expanded its offering into health telecommunications.

Positive returns outlook

Macquarie anticipates Telstra will continue to benefit from the return of roaming revenue and prices increases implemented in 2022.

Roaming revenue represents global travellers utilising local networks for roaming - that is their home carrier will have a relationship with a carrier like Telstra in Australia and there is a charge-back relationship. Australia reopened last year but it is expected that 2023 is more likely to see the benefits of international travellers. It can also relate to relationships between carriers where one carrier rents the capabilities of another in certain areas.

Macquarie also sees opportunities for Telstra in the next year from the monetisation of its FibreCo – it will complete a business restructure in January 2023 to support this activity.

Macquarie have revised their 12-month price target for Telstra up by 13% to $4.50/share.

“Telstra is trading largely in line with our measures of fair value (i.e., EV/EBITDA SOTP, and DCF). However, we believe the monetisation of Telstra’s FibreCo will be a catalyst for the stock in the next 6-12 months. In addition, we expect a positive result in February 2023 as subscriber numbers are expected to be a positive surprise to consensus.”

Telstra v ASX200 performance for the past 12 months to 24 January 2023