Like many brokers in the last 12 months, Wilsons believes that,
if TLS decides to sell 49% of its InfraCo Fixed, it would be highly sought after by Infrastructure Funds, for its reliable, inflation-indexed earnings.
The 49% would likely be sold for c. $12.5b, & its possible TLS would pay a Special Dividend of c.$1.09. TLS's intrinsic value is c. $5.50 per share.
Wilson's Full Brokers Report 26.4.23 said
"Key Points
• After a challenging period for Telstra,
we think the industry outlook is
now favourable.
• Telstra’s earnings should be supported
by higher mobile plan prices and cost
outs over the medium-term.
• We think Telstra can demonstrate
relatively resilient earnings growth
through the cycle.
• Telstra offers material valuation
upside on a sum of the parts basis, as
current market pricing does not fully
appreciate the significant intrinsic value
of its high-quality infrastructure assets.
• We think the monetisation of TLS’s
infrastructure (owned by InfraCo Fixed)
could trigger a material re-rate in TLS
while potentially funding large capital
management initiatives (e.g. special
dividends/buybacks).
Telstra’s Infrastructure Has Significant Hidden Value
for ongoing access to this critical
infrastructure. TLS’s agreement with the
NBN for access to its pits, ducts and
exchanges is worth ~$1bn per annum in
rental payments over 30 years.
We suspect InfraCo’s investment
attributes will be highly attractive to
institutional investors (e.g. super funds)
which have been actively acquiring
infrastructure and infrastructure-like
assets in recent years.
There is significant upside to
TLS’s share price implied by a
sum-of-the-parts valuation of InfraCo
We think InfraCo should be valued on an
EV/EBITDA multiple of ~15x in line with
global telco infrastructure comparables
and recent market transactions, which
typically range from ~13x to ~17x.
To assess TLS’s value as a whole using a
‘sum-of-the-parts’ analysis (detailed in
figure 6), we have applied an EV/EBITDA
multiple of 15x to InfraCo, while putting
Amplitel on an EV/EBITDA of 28x (in line
with its 2021 transaction multiple), and
applying an EV/EBITDA multiple of 7x
to the core TLS business (i.e. excluding
infrastructure assets) in line with global
telco peers.
In combination, using relatively
conservative assumptions, our analysis
implies the combined TLS business is
worth an equity value of $64bn, or ~$5.50
per share, representing material upside
to the current share price.
We are attracted to TLS’s ‘hidden
value’ attributes, which we believe can
help deliver attractive and relatively
uncorrelated returns as implied valuation
inefficiencies close.
One of TLS’s top strategic priorities
is to unlock the significant intrinsic
value of its infrastructure assets, which
we believe is not being reflected in the
company’s current market valuation as a
combined entity.
This process was kicked off with the 2021
sale of a 49% minority stake in TLS’s
mobile tower assets (Amplitel) for a
consideration of $2.8bn representing an
EV/EBITDA multiple of 28x.
InfraCo Is The Next Logical Candidate
for Monetisation
TLS has recently completed a restructure
of its assets to allow for the infrastructure
owned by its InfraCo Fixed (‘InfraCo’)
business to be monetised.
InfraCo owns a range of unique assets
including ducts, fibre, and fixed network
facilities including data centres, although
ducts are the key driver of its earnings
and value. Ducts are very high quality,
difficult to replace assets with low
ongoing CAPEX requirements.
These assets have a predictable
long-term earnings profile, which is
underpinned by the recurring, CPIlinked fees the business earns from the
NBN and other wholesale customers".
https://s3-ap-southeast-2.amazonaws.com/files-wilsons-com-au/1795/Australian-Equities-26-April-2023-Web.pdf
(20min delay)