Macquarie tips 22% return for this ASX telco stock

This telco could be undervalued at current levels according to the broker.

| More on:

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

When investors are looking for exposure to the telco sector, the usual choice for them is Telstra Group Ltd (ASX: TLS).

And while Australia's dominant telco is certainly a good option right now, there is another ASX telco stock that could deliver even greater returns.

That's the view of analysts at Macquarie Group Ltd (ASX: MQG), which are recommending this stock to clients.

group of friends checking facebook on their smartphones

Image source: Getty Images

Which ASX telco stock?

The telco stock in question is Chorus Ltd (ASX: CNU). It is New Zealand's largest telecommunications infrastructure company, building and operating nationwide fibre broadband and copper telecommunication network.

Macquarie notes that the company has released a quarterly update, which was largely in line with expectations. It said:

Fibre uptake: Fibre uptake reaches 72.1%, with 8,000 new connections in 4Q (Auckland 76.3% (flat), Dunedin 76.5% (+0.1%), Wellington 70.9% (+0.1%)). Copper withdrawal continuing: Copper connections decreased by 10,000 in 3Q (-19K in 3Q). Just 13,000 copper connections remain in areas where CNU has fibre available. Full withdrawal expected by mid-2026.

In addition, the broker was pleased to see that management has reaffirmed its full year guidance for FY 2025. It explains:

CNU delivered 1H25 EBITDA of $346m and reaffirmed FY25 guidance of $700m-$720m (currently tracking to the lower half of the range). We (and consensus) remain comfortable with guidance, supported by the quarterly connections trend. The implied strength in 2H25 EBITDA is in part underpinned by the new pricing schedule, effective from 1 Jan 2025. There is evidence that the cyclical headwinds called out in 1H25 have continued, with some consumers trading down their broadband tier, but more significantly, not trading up as might have been expected, both impacting ARPU.

Big potential returns

This morning, the broker has reaffirmed its outperform rating and NZ$9.83 (A$8.96) price target on the ASX telco stock.

Based on its current share price of A$7.75, this implies potential upside of 15.6% for investors over the next 12 months.

In addition, Macquarie is forecasting very attractive dividend yields of approximately 6.7% in FY 2025 and then 6.9% in FY 2026. Combined, this stretches the total potential 12-month return to approximately 22%.

Commenting on its outperform recommendation, Macquarie said:

We retain an Outperform recommendation, reflecting increased regulatory certainty and the lift in FY25 dividend (along with increased visibility into the medium-term dividend trajectory), and non-regulated revenue opportunities.

Catalysts: Quarterly connections updates, accelerated copper network closure, second till revenue opportunities.

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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group and 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 Broker Notes

Stressed shopper holding shopping bags.
Broker Notes

This retailer's dividend yield could top 8% in coming years: Broker

A strong profit result has set this company up for further growth.

Read more »

A woman studying share market stats on a computer while writing a report.
Broker Notes

Buy, hold, sell: SRG Global, Cochlear, NAB shares

As earnings season continues, Morgans has updated its ratings after scrutinising company reports.

Read more »

A young woman holds her hand to her ear and leans sideways as if to listen to something that's surprising her as her eyes and her mouth are wide open.
Broker Notes

Buy, hold, sell: Car Group, Baby Bunting, Hub24 shares

We review three fresh buy, hold, and sell calls from expert market analysts. 

Read more »

Man working on his tablet with hologram of a world map and financial-related charts.
Broker Notes

Buy, hold, sell: Premier Investments, Hansen Technologies, Santos shares

Experts reveal their ratings on 3 ASX shares in the retail, energy, and technology segments. 

Read more »

Happy female accountant looking at her tablet.
Broker Notes

7 ASX 200 shares with reaffirmed buy ratings this week

Brokers retained a positive view on Santos, Zip, Coles, and other shares this week. 

Read more »

Broker working with share prices on computers.
Broker Notes

10 ASX 200 shares downgraded by analysts this week

Brokers reduced their ratings on QBE, Temple & Webster, BHP, and other stocks this week. 

Read more »

A woman in a red dress holding up a red graph.
Broker Notes

3 ASX stocks UBS rates as a buy after recent results

The broker is tipping these companies will continue to deliver.

Read more »

A wine technician in overalls holds a glass of red wine up to the light and studies it.
Broker Notes

Up 67%! Why the rebound in Treasury Wine shares may just be getting started

A leading analyst expects the big rebound in Treasury Wine shares is just the beginning.

Read more »