Telstra Group Ltd (ASX: TLS) shares haven't been immune to the market selloff this month.
In fact, its shares have lost almost 4% since hitting a multi-month high on 1 August.
Analysts at Goldman Sachs appear to believe this could have created a buying opportunity for investors.
What is Goldman saying about Telstra shares?
According to a note released this morning, the broker thinks investors should be buying the telco giant's shares ahead of the release of a "solid set of FY24 results" later this month.
Not only does Goldman expect Telstra to achieve its guidance for this year, it expects an upgrade or narrowing of its guidance for FY 2025. It commented:
We expect a solid set of FY24 results, within its recently re-iterated guidance ranges, with growth driven by Mobile & InfraCo segments. […] We expect TLS to narrow/upgrade its FY25 EBITDA guidance range to A$8.5-8.7bn (from A$8.4-8.7bn), given the greater certainty around AU mobile pricing and that TLS year-ahead guidance is typically a A$200mn range.
In light of the above, the broker has reiterated its buy rating and $4.30 price target on Telstra's shares. This implies potential upside of 13% for investors over the next 12 months.
In addition, Goldman is forecasting fully franked dividends of 18 cents per share in FY 2024 and 19 cents per share in FY 2025. This represents 4.7% and 5% dividend yields, respectively.
Why is it bullish?
Goldman likes Telstra due to its low risk earnings and the opportunity to unlock value through the disposal of non-core assets. It explains:
We believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive. We also believe that Telstra has a meaningful medium term opportunity to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-33bn.
Although there is some debate around the strategic benefits, we see a strong rationale for monetizing the recurring NBN payment stream, given its inflation-linked, long duration cash flows could be worth $14.5bn to $17.9bn, with no loss of strategic benefit. Although at a headline level, Telstra valuation appears relatively full (vs. peers and vs. 10Y yield), we note: (1) Adjusting out NBN recurring payments (a unique asset), Telstra trades at a much more compelling multiple; (2) Although its yield spread is compressed vs. history, when factoring dividend growth this is more attractive. Hence, in an uncertain 2024 we rate Telstra Buy.
There are a number of risks that investors ought to be aware of, though. Goldman concludes:
Key risks to our view include: (1) higher competition in mobile/fixed from Optus/TPG or from smaller players using the NBN to loss lead, both which would reduce our earnings & dividend growth; (2) disappointing cost out performance, meaning TLS is unable to offset wage cost inflation; (3) unfavorable regulation in fixed & mobile, including NBN pricing; and (4) delays to infrastructure monetisation or lower than expected realised value.
