Is the Telstra share price good value in July?

Here's what one leading broker is saying about the telco giant.

| More on:
A man wearing a colourful shirt holds an old fashioned phone to his ear with a look of curiosity on his face as though he is pondering the answer to a question.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Telstra Group Ltd (ASX: TLS) share price was on form on Tuesday.

The telco giant's shares ended the day 2% higher at $3.73.

Why did the Telstra share price rise?

Investors were buying Telstra's shares after it announced an increase to its mobile prices.

The changes will see prices on most Telstra mobile plans increase by between $2 to $4 per month. Management noted that these changes aimed to balance cost of living pressures "with its need to continue to invest to manage technology evolution and continued strong customer demand on its mobile network."

Based on its share price performance yesterday, it seems that the market believes the company has got it just right with these increases.

Analysts at Goldman Sachs appear to believe this is the case. They also see the price increases as a sign that competition in the telco market remains rational. The broker commented:

These plan changes highlight: (1) mobile market rationality remains (particularly when combined with the recent Optus increase); (2) TLS mobile earnings growth remains strong, driven by subscribers and ARPU, despite the uncertainty created by TLS May-24 update; (3) flexibility benefits of a non-CPI linked pricing mechanism (i.e. greater than CPI price rises on core plans, but no price increase on the more price sensitive Starter plans, which we believe should also help mitigate any concerns around price gauging); (4) Telstra TLS FY25 guidance should likely be narrowed to $8.5-$8.7bn at its Aug-24 result (from $8.4-8.7bn) which would be its typical $200mn range, now the company has much greater certainty around its mobile pricing outlook.

Goldman estimates that the changes will have a positive impact on its average revenue per user metric (ARPU) and its earnings and dividends per share. Its analysts add:

We estimate the postpaid plan changes to drive a blended A$2.50 ARPU increase for Telstra. Adjusting for GST, consumer mix (i.e. 2/3 of base) and c.9 month impact, we expect this to contribute $1.14 of ARPU growth, before any potential spin-down. When combined with the significant JB-HiFi and smaller Belong mobile plan changes (noting that JB-HiFi plan changes take significant time to wash-through the base), we now expect $1.20 ARPU growth (from $0.80) and marginally stronger mobile ARPU trends into FY26 (GSe Postpaid +1.5% growth, from +1.0%, Prepaid +1.0%, from 0%). Collectively, this drives our FY25 EBITDA to $8,595mn, FY25/26 EPS +1/3% and DPS to 19.0/20.0c (from 18.5/19.5c).

Time to buy?

The broker thinks that this is another signal to buy the company's shares and continues to see a lot of value in the Telstra share price.

In response to the update, Goldman has retained its buy rating and lifted its price target to $4.30. This implies potential upside of 15% for investors over the next 12 months. It also expects dividend yields of 5.1% in FY 2025 and then 5.35% in FY 2026.

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 positions in and has recommended Goldman Sachs Group. 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.

More on Communication Shares

A female executive smiles as she carries out business on her mobile phone.
Communication Shares

Telstra share price lifts off alongside its mobile pricing plans

ASX 200 investors are bidding up the Telstra share price today.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Communication Shares

Down 16% over 12 months, the Telstra share price could explode 20% from here!

ASX brokers are clamouring over Telstra shares right now.

Read more »

Man on a laptop thinking.
Communication Shares

How come the Telstra share price crashed 16% in FY 2024?

Telstra shares massively underperformed the ASX 200 in FY 2024. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Communication Shares

Do Telstra shares have a strong outlook for FY25?

Is this ASX telco stock about to make a roaring comeback in the next financial year?

Read more »

A woman standing in a blue shirt smiles as she uses her mobile phone to text message someone
Communication Shares

ASX expert: Time to buy Telstra shares

This broker reckons Telstra is heading for big gains, and soon.

Read more »

A female executive smiles as she carries out business on her mobile phone.
Broker Notes

Buy Telstra shares due to its 'excessive' discount

This telco giant's shares could be unnecessarily cheap according to Bell Potter.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Communication Shares

Would Warren Buffett buy Telstra shares?

Would Telstra shares attract the great investor from Omaha?

Read more »

man using a mobile phone
Communication Shares

Telstra shares: Buy or sell?

Is it time to buy or sell the telco giant's shares? Here's what analysts think.

Read more »