On Monday, Telstra Group Ltd (ASX: TLS) shares started the week with a decent gain.
The telco giant's shares rose 1% to $4.02 after investors responded positively to news that the company has agreed to sell its stake in Foxtel.
News Corporation (ASX: NWS) and Telstra signed an agreement with global sports streaming platform DAZN Group to sell the pay TV business for an enterprise value of $3.4 billion.
The deal will see Telstra divest its 35% stake in Foxtel to DAZN Group in exchange for $128 million in cash for repayment of shareholder loans and a 3% shareholding in DAZN Group.
Does this deal make Telstra shares a buy? Let's see what analysts at Goldman Sachs are saying about the transaction.
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What are analysts saying?
According to a note out of the investment bank, its analysts appear to be pleased with the deal.
Commenting on the transaction, the broker said:
(1) According to the announcement, the transaction represents an enterprise value of >7x FY24 EBITDA (inc. NWS/TLS A$706mn outstanding shareholder loans & transfer of US$777mn Foxtel debt to DAZN); (2) NWS to receive cash proceeds of A$578mn or US$364mn at spot, which on our estimates implies FY25E group net debt/EBITDA of -0.4X (vs. 0.2X prior) and total liquidity of US$3.1bn; (3) According to the announcement, NWS will hold a c. 6% equity interest in DAZN providing a larger exposure to global sports streaming and entertainment (300mn viewers across 200 markets) as DAZN continues to pursue expansion into new markets.
(4) Telstra to also sell its minority interest in Foxtel (A$128mn cash received for repayment of shareholder loan and will hold an approximate 3% shareholding in DAZN); (5) News Corp to have a heightened focus on the faster growing Digital Real Estate and Dow Jones global businesses. We note that News Corp FY21-24 EBITDA CAGR was +5% including Foxtel, but +9% excluding; (6) In our view the sale could increase competition for sports rights in Australian given DAZN's existing presence in global streaming sports rights.
Are Telstra shares a buy?
In response, Goldman Sachs has reaffirmed its buy rating and $4.50 price target on Telstra's shares.
Based on its current share price of $4.02, this implies potential upside of 12% for investors over the next 12 months.
Goldman believes that the Foxtel sale could be just one of a number of divestments from the telco giant. It explains:
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 A$14.5bn to A$17.9bn, with no loss of strategic benefit.
Outside this, the broker believes that Telstra's shares are attractively priced when adjusting out NBN recurring payments. It concludes:
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 we rate Telstra Buy.
