Could this prove to be a new cash cow for Telstra shares?

Telstra shareholders can vote on a proposed company split next month.

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Key points

  • Experts have analysed Telstra's proposed split from its InfraCo business unit
  • If the split moves ahead as planned, it may unlock additional value for shareholders
  • It will also allow Telstra to "sell float, or demerge securities in InfraCo Fixed without NBN Co consent"

The Telstra Corporation Ltd (ASX: TLS) share price could have new life breathed into it over the next week amid plans to legally separate the company from its InfraCo business unit, as reported by the Australian Financial Review on Sunday.

Telstra shareholders can vote on the proposed company split at a scheme meeting next month. The first court hearing will be on Friday. If the split goes ahead, the business restructure will occur on 1 January 2023.

Some banking experts have given their take on what the Infraco split could mean for the company.

Let's cover the highlights.

What could the Infraco split mean for Telstra?

Experts said Telstra will have more control over Infraco's securities. This includes the ability to "sell, float, or demerge securities in InfraCo Fixed without NBN Co consent," the article said. However, there are some conditions. One is that Telstra must own a 50.1% stake in InfraCo.

Separating Telstra's business units could prove to be expensive, with a proposed $126 million one-off cost. Plus, there's the potential for costs to add up quickly if Telstra sold more than 10% of its Infraco stake, the article said.

The broader picture is that Telstra deems the $126 million cost immaterial, according to a booklet sent to investors. The restructure will help unlock value from Telstra's infrastructure and separate management teams will mean improved focus for each business unit.

When the announcement was made in March 2021, the Telstra share price moved up 0.26%.

At the time, Goldman Sachs described the restructuring as a positive move for shareholders, stating:

We remain positive on TLS, as this update outlines the next steps of the corporate restructure and potential asset monetization, and gives us confidence that its infrastructure value will ultimately be realized by shareholders. Based on our updated transaction multiples/illustrative SOTP valuations, TLS shares currently trade on just 4.1-4.7x ServeCo FY23E EBITDA or 5.7-6.3X at our unchanged A$4.00 12m TP, vs. SPK.NZ at 8.3x. We reiterate our Buy on TLS, our preferred ANZ Telco, ahead of its FY21 results and Nov-21 ID, both of which we view as positive catalysts.

Telstra share price snapshot

Shares of the telco opened this morning at $3.81 each.

The Telstra share price is down 10% year to date. The S&P/ASX 200 Index (ASX: XJO) is down 10.5%.

The company's market capitalisation is $43.79 billion.

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has positions in 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 Scott Phillips.

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