Telstra Group Ltd (ASX: TLS) shares could be great value at the current level.
That's the view of the team at Goldman Sachs, which have just upgraded the telco giant's shares.
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What is Goldman saying about Telstra shares?
According to the note, the broker has upgraded Telstra's shares to a buy rating with an improved price target of $4.60.
Based on the current Telstra share price of $4.08, this implies potential upside of approximately 13% for investors.
Goldman has also revealed its dividend expectations for Telstra in the coming years. It is forecasting fully franked dividends per share of 17 cents in FY 2023, 18 cents in FY 2024, and then 20 cents in FY 2025.
The former equates to a 4.15% dividend yield, which brings the total potential return to 17% for investors over the next 12 months.
Why did it upgrade Telstra?
There were a number of reasons for Goldman's upgrade. These include the company's defensive qualities, its positive growth outlook, and the potential monetisation of its InfraCo Fixed assets. It explained:
Given the defensive nature of telecoms into an uncertain 2023, we believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned by its mobile business, is attractive.
We believe FY23 earnings will be robust, benefiting from challenges that the competitors are currently facing (Optus hacking, TPG MOCN) offsetting the near-term cost pressures (call centre on shoring, retail stores & staff inflation), and we are incrementally more positive on the medium term mobile outlook, supported by the recent TPG price rises.
Finally the other key reason for our positive view is that 2023 presents a meaningful opportunity for Telstra to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-30bn.
