The Telstra Corporation Ltd (ASX: TLS) share price is struggling to deliver shareholder value. This has been the case for the past five to six years. The earnings landscape for Telstra has become increasingly challenging. For example, the government's NBN Co running home internet connectivity, emerging internet-based technologies, and rising competition have all diminished the company's blue-chip status.
Telstra is trying to turn a new page with a proposed legal restructure that it expects to be completed by this December.
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Is the restructure a good or bad thing?
Brokers are largely positive on the news that Telstra will create separate subsidiaries. These will include InfraCo Fixed (physical network infrastructure assets), InfraCo Towers (physical mobile tower assets), and also ServeCo (customer service and products) and Telstra international.
On 23 March, Goldman Sachs eyed potential asset monetisation. This gives the broker greater confidence that its infrastructure value will ultimately be realised by the market. The broker is bullish on the restructure with a $4.00 12-month target price. Specifically, representing an upside of ~20% at today's prices.
Today, Ord Minnett and Credit Suisse maintained a similar view with a respective $4.05 and $3.85 target price. Ord Minnett assumes that the proposed legal restructure will be approved by shareholders. Moreover, this decision will be made at the October AGM and the first bids on its towers will be made by December.
Morgans also released a note today. Consequently, it decided to leave forecasts unchanged. The broker notes that there are still several issues to be worked through. Additionally, further details to be released in the scheme booklet in early December. The broker retains a hold rating with a $3.33 target price.
Downside risks for the Telstra share price?
The restructure is generally viewed as a near short-medium term catalyst to unlock significant value for the Telstra share price. However, Goldman Sachs notes some key risks within the broader telecommunications market. Indeed, this could present downside risks for the Telstra share price. This includes:
1) Increased competition, particularly in the mobile market
2) Disappointing cost out relative to its $2.7bn productivity program
3) Unfavourable regulation across its businesses
4) Asset monetisation is ultimately unsuccessful
