What are analysts saying about Telstra’s (ASX:TLS) $1.6bn ‘nation-building’ projects?

Telstra has some big plans…

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Key points

  • Telstra has announced two projects that will cost $1.6 billion
  • Analysts have mixed feelings about the projects but overall appear positive on them

The Telstra Corporation Ltd (ASX: TLS) share price has been on form this week.

This follows a positive response from the market to its new $1.6 billion “nation-building” projects.

The first project is building ground-based infrastructure (satellite base stations) and the fibre network/backhaul connecting those base stations across Australia. This will create the “largest-scale satellite solution deployment in the nation’s history.”

Whereas the second project involves a ~6x upgrade to Telstra’s extensive inter-capital fibre network. This will enable “ultrafast connectivity between capital cities and improved regional connectivity.”

What are analysts saying about the projects?

A number of analysts have been looking at Telstra’s bold plans and have given their verdict on them.

Goldman Sachs commented: “We are positive on the Viasat contract, which drives incremental near-term earnings. However, the returns on the intercity fibre investment are less clear.”

While the broker believes the latter will allow Telstra to “capitalize on the significant demand for dark fibre services from Cloud Service Providers,” it believes the “investment is in response to competing network builds such as HyperOne, which would negatively impact TLS existing intercity earnings.”

Goldman Sachs has a neutral rating and $4.40 price target on Telstra’s shares.

What else is being said?

The team at Morgans has also given its opinion on Telstra’s plans.

Its analysts said: “These two projects are largely around expanding TLS’s already extensive fibre network to increase coverage and capacity across Australia. Both projects are, to some extent, fibre backhaul upgrades across the country and have, in our view, some duplicate uses (eg base stations may need inter-capital fibre).”

“It can be argued that much of Project#2 is business as usual as TLS needed to upgrade its legacy inter-capital networks to meet growing data requirements from customers. Offsetting this, management expects to derive net new business (incremental earnings streams) from Project#2,” it added.

Morgans has an add rating and $4.56 price target on its shares. This implies potential upside of almost 14% based on the current Telstra share price.

Motley Fool contributor James Mickleboro 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 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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