The Uniti Group Ltd (ASX: UWL) share price has been a strong performer in 2021.
Since the start of the year, the internet provider's shares have risen an impressive 38%.
Is it too late to buy Uniti shares?
The good news for investors is that one leading broker doesn't believe it is too late to invest.
According to a note out of Goldman Sachs, its analysts have initiated coverage on the company with a buy rating and $3.00 price target.
Based on the current Uniti share price of $2.41, this implies potential upside of 24.5% over the next 12 months.
What is Uniti?
Uniti is a provider of fibre connectivity to new Australian residential premises, competing with the government owned NBN. When successful, Uniti builds and operates these fibre networks as a wholesaler.
Goldman notes that developers partner with Uniti due to lower pricing, the inclusion of TV & smart-building services, improved co-ordination with developers, and estate aesthetics.
Why is the broker bullish?
The broker believes that Uniti is well-placed for growth via market share gains following a period of significant M&A activity. This includes the purchase of the Velocity assets from telco giant Telstra Corporation Ltd (ASX: TLS) late last year for $140 million.
Goldman said: "After a period of significant M&A, UWL is refocusing on organic growth and aiming to increase its share of new residential fibre connections in Australia. After consolidating all existing operators and having TLS join its network in Dec-20 (TLS = 46% fixed share), we believe UWL has both the scale and offerings to more aggressively compete and grow share from 15% (FY21E, 30k premises) to 21% (FY30E, 54k)."
"UWL's current contracted premises (202k at Dec-20) also underpins an extended period of organic growth, with these builds delivering particularly attractive returns (we estimate 73% ROIC). However, we still see attractive economics on future builds, estimating a 15% ROIC even if developer contributions are competed away completely. We also see barriers to entry in this market, with developers requiring telco partners (UWL has > 40, incl. TLS), while RSPs require sufficient scale to justify onboarding costs."
Valuation
Why is the Uniti share price worth $3.00 today? Goldman's analysts explained how they came to this valuation.
They said: "Our 12-m target price of A$3.00 is based on an FY23E EV/EBITDA SOTP. We ascribe: (1) A$2.90 fundamental value (85% weight) using 15X Wholesale & Infrastructure (W&I) for +14% FY21-23E growth vs. CNU on 13X for +1%, NXT on 32X for +25%) and 8X on its CPaaS cash business; and (2) A$3.50 M&A valuation (15% weight) given elevated industry M&A. With +25% upside, we view UWL as having an attractive risk-reward and initiate at Buy, but do see a degree of integration risk given the recent M&A."
