Telstra (ASX:TLS) share price and improving sector dynamics – Expert

This fund is expecting headwinds to shift towards tailwinds for Telstra…

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The Telstra Corporation Ltd (ASX: TLS) share price has been one of the best performing out of the top 50 ASX-listed shares so far in 2021. On a year-to-date (YTD) basis the telecommunications company has delivered a return of ~25%.

While such returns are truly exceptional for an ASX-listed blue-chip share, Perennial Value Management is betting on even better things to come.

Promising future for Telstra share price

Perennial discussed the prospects of the well-known telco in its June monthly report. Telstra holds a spot in the Perennial Value Australian Shares Trust, a trust fund that is geared towards ‘value’ orientated ASX shares.

According to the report, Perennial foresees headwinds subsiding as the NBN roll-out nears its completion. While in the past the likes of Telstra and TPG Telecom Ltd (ASX: TPG) have been hit by the impact on their fixed-line businesses, Perennial expects mobile segments to perform strongly.

Both the adoption of 5G technology and increasing data needs have the fund looking positively towards the sector. This bodes well for the Telstra share price, being the leader in 5G coverage across Australia.

Further to this, the consolidation in the telecommunications industry appears to be developing a tailwind for the sector. On this topic Perennial said:

The recent merger of TPG with Vodafone has improved the industry structure, effectively locking in a three-player market. This is likely to lead to a rational competitive environment and recent pricing increases suggest this is occurring.

These remarks reiterate comments made by CEO Andy Penn from earlier in the year regarding growth. That’s right, the ‘G’ word – growth… not a word that has been in the vocabulary of Telstra investors for quite some time.

Mr Penn suggested Telstra was aiming for earnings before interest, taxes, depreciation, and amortisation (EBITDA) to increase in FY22, and climb further the following year. Certainly providing positive sentiment towards the Telstra share price.

Value in telecommunications infrastructure

The fund also covered the evident value proposition in telecommunications assets to infrastructure investors. In particular, Telstra managed to sell 49% of its stake in its mobile towers at a 28 times EBITDA multiple.

As a result, Telstra will receive $2.8 billion in proceeds. The company has slated half of the funds to be returned to shareholders in FY22. Perennial suggested these improving sector dynamics place telcos as one of its preferred defensive exposures.

The telco giant holds a market capitalisation of $44.78 billion based on the current Telstra share price.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation 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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