Our preferred Telecom exposures include: (1) Vocus (Buy, on CL) which is entering the 3rd and final year of its turnaround and is the only large telco to be growing earnings, driven by strong execution in its Vocus Network Services division; (2) Telstra (Buy) given the improving mobile outlook and valuation upside as it becomes a 'simpler' telco post NBN completion (we estimate it could be worth between A$3.69 to A$4.24 if it moved towards multiples it traded on prior to the NBN headwind (i.e. 2014-15) or closer to Spark New Zealand??? see Exhibit 5), supplemented by further upside from possible asset monetisations (incl. $0.14 to $0.32 of potential valuation uplift from TowerCo); and (3) NextDC (Buy) given its attractive, low-risk earnings profile which we expect will continue to deliver compelling shareholder returns.
