TPG Chair resignation: Is this good news for the Telstra (ASX:TLS) share price?

Is David Teoh’s resignation from TPG Telecom Ltd (ASX:TPG) good news for the Telstra Corporation Ltd (ASX:TLS)?

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Last week TPG Telecom Ltd (ASX: TPG) dropped a bombshell when it announced the surprise resignation of its Founder and Chairman, David Teoh, with immediate effect.

This news led to the TPG share price crashing lower and the Telstra Corporation Ltd (ASX: TLS) share price pushing higher.

Is this good news for the Telstra share price?

Analysts at Goldman Sachs have been looking into the implication of Mr Teoh’s resignation and see positives for Telstra and the telco industry.

In respect to industry pricing, Goldman believes this news will be a big positive.

It commented: “We see this as a clear positive for industry rationality, noting that the TPM Board had a track record of targeting market share growth through aggressive pricing. Consequently, following the merger between TPG and VHA, there has been an elevated risk that this price-led strategy would become evident within the new TPG mobile business, and disrupt the current market repair.”

“Hence we view this announcement as a clear positive for rationality in the Australian mobile market, reducing the tail-risk of an aggressive price-led strategy from TPG.”

This is particularly the case given that the appointment of Canning Fok as Mr Teoh’s replacement means the old Vodafone Australia team has control of the business now.

Goldman explained: “In our view, Fok’s appointment as Chair of the TPG board cements control of the business with Vodafone & Hutchinson, who now represent: (1) 50.1% of the TPG equity; (2) both CEO & Chair of the business; and (3) 5 of the 10 board members (5 VHA, 3 TPM, 2 Independent).”

Should you buy Telstra shares?

In light of the above, Goldman Sachs has reaffirmed its buy rating and $4.00 price target on Telstra’s shares.

Based on the current Telstra share price of $3.39, this implies potential upside of 18% over the next 12 months. And with Goldman forecasting a 16 cents per share fully franked dividend for the foreseeable future, the total potential return stretches to almost 23%.

The broker concluded: “Overall this announcement supports our positive view on the Australian Telco Sector into 2021, given the expected return to growth in mobile revenues and completion of the NBN margin headwinds in fixed. Our preference remains for Telstra (Buy, A$4.00 TP) as we outlined in our 2021 Outlook, given our expectations for a re-rating of the business as it becomes a ‘simple’ telco again, along with the potential upside in its infrastructure assets.”

Goldman Sachs has retained its neutral rating and $7.10 price target on TPG’s shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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