Telecommunications giant Telstra Corporation Ltd (ASX: TLS) has disappointed long-term investors in recent years, but shown a glimmer of hope in 2021. Telstra shares have plunged more than 34% in the past 5 years, even after a 25.6% gain this year.
The Wilson Asset Management team certainly thinks the revival this year is justified and is the start of a massive turnaround.
In a memo to clients, portfolio managers Matthew Haupt, Catriona Burns and Oscar Oberg revealed the WAM Leaders Ltd (ASX: WLE) fund is currently holding Telstra stocks.
"We believe the telecommunications sector is at the start of a growth phase, following years of headwinds, including narrow NBN pricing margins," their memo read.
"The mobile market is now in repair, with Telstra the first of its competitors to lift its prices last year, with competitors Optus and Vodafone [TPG Telecom Ltd (ASX: TPG)] following this year."
The rising prices are a positive indicator the telecommunications market is "behaving rationally", according to the Wilson trio, and would improve margins for everyone.
"We expect this to materialise in average revenue per user (ARPU) growth in the coming years."
Watch out for a spike in Telstra shares this results season
The Wilson portfolio managers also loved the $2.8 billion reaped from Telstra's sale of its mobile towers. This was a price "significantly higher" than the market expected.
"(This) provides further upside for Telstra's remaining infrastructure assets should they be sold," the memo read.
"The company will also benefit from international borders reopening, with its overseas roaming services operating at very accretive margins."
The results season next month could see Telstra shares move, according to the fund managers.
"We see a number of catalysts that we expect to re-rate the share price further, including the company's results in the August reporting season followed by a refresh of the nearly concluded T22 transformation strategy, which included aggressive cost-saving measures."
Plus, don't forget the icing on top.
"Telstra also has a meaningful dividend yield, which we believe will form a large proportion of returns this year relative to previous years."
The WAM Leaders share price is up almost 15% for this year, and now trades a premium to net tangible assets at $1.58. The listed investment company's portfolio was up 37% in the 2021 financial year.
