The Telstra Corporation Ltd (ASX: TLS) share price has been a disappointing performer but at least one broker sees big potential upside.
The TLS share price slumped by nearly 20% over the past year and is trading at $3.08 at the time of writing.
That's significantly worse than the circa 3% dip in the S&P/ASX 200 Index (Index:^AXJO). Other ASX telecommunications stocks are also miles ahead.
Can the Telstra share price play catch-up in 2021?
The Amaysim Australia Ltd (ASX: AYS) share price doubled, Vocus Group Ltd (ASX: VOC) share price rallied 28% and the TPG Telecom Ltd (ASX: TPG) share price added 1%.
But the lagging Telstra share price could be worth a lot more than what the market is expecting, according to Macquarie Group Ltd (ASX: MQG).
This is because Telstra plans to split its assets into separate entities could release significant value. Specifically, the move to spin off its mobile towers division could attract a high valuation.
Unlocking value via mobile divestment
This division, affectionately termed TowerCo, is leveraged to the 5G opportunity. Macquarie thinks the spin-off could either come via an initial public offer (IPO) where half of the business is sold to ASX investors, or through a 50% sale to a partner.
"We derive an EV of ~$5-6bn representing a 25-30x FY1 EBITDA multiple," said the broker.
"We believe listed markets would pay ~25x EV/EBITDA forTowerCo whereas an unlisted Australian investor could pay up to 34x given value attributed towards franking credits and a lower return hurdle (equity IRR assumed: 7%)."
Fibre asset has big upside too
As for Telstra's fibre infrastructure asset, these could be worth around 14 times earnings before interest, tax, depreciation and amortisation (EBITDA). Macquarie noted that other listed fibre companies trade at between 12 and 14 times EBITDA.
What's more, the multiples paid in past transactions range between 10 and 20 times with the average at 14 times.
"While the path to crystalising is uncertain, we note there is material upside if these assets are marked to market," noted Macquarie.
"We estimate a 'fair' value release valuation of ~$3.95ps, representing ~30% upside to the current share price."
What the Telstra share price could be worth
The upside could be much more significant under the broker's bull case scenario. Macquarie estimated that the divestments could value the TLS share price as much as $4.29. That's a 39.3% increase to the current Telstra share price excluding dividends.
Under Macquarie's bear case scenario, the Telstra share price would be only worth $2.69 a pop, or a 12.7% decline.
Given the risk-reward, the Telstra share price could be a worthwhile investment. Macquarie is recommending the stock as "outperform" with a price target of $4 a share.
