Who would have thought that the Telstra Corporation Ltd (ASX: TLS) share price would be among the best performers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index for FY19!
If you had asked anyone at the start of this financial year to pick the top movers on the ASX 200, I don't think many would be guessing that our largest listed telco would be among the blue-chip leaders.
But the Telstra share price has surged 44% over the past year and is only a little behind the likes of the Brambles Limited (ASX: BXB) share price, Mirvac Group (ASX: MGR) share price and Newcrest Mining Limited (ASX: NCM) share price.
Upside for the Telstra share price
Those wondering if this is as good as it gets for Telstra, which is still facing an earnings challenge despite the share price rally, there is some good news from Morgans. The broker thinks fair value for the stock is $4.47 a share.
This implies a 16% upside from the current TLS share price. If you throw in 16 cents per share worth of dividends, the 12-month total return could run up to 20% – and that's before counting the franking credits!
"After four years of underperformance, the tide has finally turned for TLS," said Morgans.
"The company has moved from being on the receiving end of NBN and competitive pain to being given a helping hand with government intervention causing a stalemate on Huawei and the TPG/Vodafone merger."
5G edge and the waning NBN headwind
TPG Telecom Ltd (ASX: TPM) is trying to merge with Vodafone but the move is being blocked by the ACCC.
While the two are trying to get the courts to overturn the block by the competition watchdog, the delay will give Telstra more time to pull ahead of its competitors in the 5G mobile race.
Further, things are also finally looking up for Telstra's fixed business (i.e. home broadband) that was squeezed by the NBN.
"For over three years retail NBN prices have headed lower. In March 2015 the average 25/50 Mbps NBN plan price was A$107 per month," said Morgans.
"This dropped to a low of A$72 in December 2018 and has gradually headed towards $75 in June 2019. Prices rose slightly in March, May and June 2019. Our view is that since we are 70% through the rollout, the forced churn event has slowed and this leads to a lessening in price-based competition."
Morgans has reiterated its "add" recommendation on Telstra.
