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Key points
- Telstra shares are viewed as an opportunity by several leading analysts
- It has made two, useful bolt-on acquisitions in recent months
- The T25 strategy is expected to increase profitability and lead to growing dividends over time
The Telstra Corporation Ltd (ASX: TLS) share price looks like an opportunity according to some analysts.
Despite the recent drop of the ASX share market, Telstra shares are still actually up by 25% over the past year.
It has been a big year of strategic moves by the business. Analysts are taking note and think that the company could be an opportunity.
Analyst ratings on the Telstra share price
Ord Minnett currently rates the Telstra share price as a buy with a price target of $4.85. That's a potential increase of more than 20% this year if the broker is right.
Another broker that likes the telco is Credit Suisse, which rates it as a buy with a price target of $4.40.
Morgans rates the Telstra share price as a buy with a price target of $4.55.
What are the experts seeing?
The telco giant has made two acquisitions in the last several months that can diversify and help grow the company's earnings over the long-term.
MedicalDirector deal
Telstra Health has bought a business called MedicalDirector for an enterprise value of $350 million.
It's described as a leading GP clinical and practice management software company. It helps the specialists focus on providing high-quality care and reducing time on paperwork and administration. At the time of the acquisition, it supported approximately 23,000 medical practitioners and is used to deliver more than 80 million consultations a year.
Digicel Pacific acquisition
One of the most interesting acquisitions on the ASX in 2021 was the purchase of the Digicel Pacific business in partnership with the Australian Government. The purchase price for the South Pacific telco was US$1.6 billion and up to an additional US$250 million subject to business performance.
The Digicel Pacific business will be owned and operated by Telstra. The ASX telco is providing US$270 million of equity to the purchase price, whilst the Australian Government will provide the remaining US$1.33 billion through a combination of non-recourse debt facilities and equity-like securities.
It has a "strong" market position in the South Pacific region, with a leading position in PNG, Nauru, Samoa, Tonga and Vanuatu. Digicel is number two in Fiji.
Digicel Pacific made US$233 million of earnings before interest, tax, depreciation and amortisation (EBITDA) in the 12 months to 31 March 2021.
T25 strategy
One of the main things that analysts are now focused on in regards to the Telstra share price is its strategy for the next few years, called T25.
It involves ongoing expansion of 5G coverage and regional 4G coverage, increasing customer satisfaction and increasing the number of Telstra Plus members to 6 million.
On the financial side of things, to FY25, Telstra wants to achieve a compound annual growth rate (CAGR) of mid-single digits for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and high-teens for underlying earnings per share (EPS).
The company is also looking to reduce its net fixed costs by another $500 million.
Telstra also said that it's looking to maximise its fully franked dividends and seek to grow them over time.
Telstra share price valuation
Using Ord Minnett's numbers, Telstra shares are valued at 21x FY23's estimated earnings with a grossed-up dividend yield of 5.8%.
