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.
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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.
