Is the Telstra share price too cheap?

Could this be an opportunity calling?

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The Telstra Group Ltd (ASX: TLS) share price has dropped 20% over the past 12 months and 13% since the start of the year, as shown in the chart below.

When a large ASX blue-chip share falls, it can be worth a closer look to determine whether it's now better value to buy.

This week's 6% dip was likely triggered by a recent Telstra update on mobile prices and cost-cutting at its enterprise business.

Wilson Asset Management (WAM) senior investment analyst Anna Milne recently spoke about her views on the ASX telco share, which she's bullish on for several reasons.

But first, a recap on Telstra's recent news

On Tuesday, the telco stock announced it was working on measures to reset the enterprise business and improve productivity, including the bombshell news it may cut up to 2,800 jobs from that division.

Telstra also advised it would wind up its postpaid mobile plans to remove the CPI inflation-linked annual price review. This would provide "greater flexibility to adjust prices at different times and across different plans". However, some investors fear it may mean price increases will stop.

Even so, Telstra revealed its mobile business "continued to perform strongly, with growth in subscriber numbers for the first four months" of the FY24 second half.

The company also revealed guidance that FY25 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) would be between $8.4 billion to $8.7 billion.

Long-term data demand

On the same day, WAM analyst Milne identified Telstra's connectivity as a major positive, saying it would ensure the company would benefit from the growth in artificial intelligence (AI).

She noted there was "no point in having the data and having the artificial intelligence if you don't have the infrastructure to connect data centres" with households and businesses.

To this end, Telstra is developing an intercity fibre project to "deliver next-generation digital infrastructure for the country as demand for connectivity continued to soar."

Telstra CEO Vicki Brady explained these fibre cables would build resiliency and "support data centres that facilitate cloud and AI", as well as many other sectors. It's working on a number of routes, including connecting into Darwin from Adelaide. This route unlocks pathways to sub-sea cable infrastructure and provides new options for data centre locations, including to service Asia.

The intercity fibre and 'Viasat' projects are on track to deliver an internal rate of return (IRR) in the "mid-teens or better" and around $200 million in additional annuity income once all routes become ready for service and contributing.  

Lower Telstra share price

The WAM analyst is also attracted to Telstra's lower share price, which now has dropped even more.

Milne noted that the company's enterprise division in the FY24 first-half update had not impressed the market, suggesting this was an opportunity for Telstra to look at that business and "cut costs", which the telco is now doing.

She had this to say about the Telstra share price:

… 70% of their earnings come from the mobile division and the mobile division is in the best place it's been in years. Prices are increasing, subscribers are increasing and the industry is rational. We see the current share price as an opportunity to enter one of the best businesses in Australia at a discount.

Time will tell if the market is too pessimistic about Telstra's prospects.

Motley Fool contributor Tristan Harrison 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 has positions in and has recommended Telstra Group. 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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