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Lord of the Bling: The 8,200 towers, as Telstra begins monetisation

Brian Han  |  01 Jul 2021Text size  Decrease  Increase  |  
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The first cab off the rank for Telstra's separation journey was not only swift and clean but is likely to tantalise investors about other potential monetisation windfalls.

The sale of a minority 49 per cent interest in InfraCo Towers has been struck months ahead of schedule. It eliminates the complexities of ensuring Telstra's (ASX: TLS) mobile differentiation and network leadership had the asset proceeded to auction involving multiple parties.

Critically, the 28 times EBITDA multiple achieved for the asset dwarfs the 20 times global average struck for similar towers transactions involving minority stakes.

The plan to return to shareholders 50 per cent of the expected $2.8 billion proceeds also raises hopes for the soon-to-be-separated InfraCo Fixed and InternationalCo. Further, management has struck a sensible balance between shareholders' thirst for immediate returns and the need to maintain balance sheet strength.

As discussed in our report "Better Reception on Telstra", positive catalysts are lining up. This is at a time when competitive intensity in mobile is easing, while material cost-out potential remains post T22.

Shares in narrow-moat-rated Telstra have closed the gap to our unchanged $3.80 fair value estimate as a result, having surged 28 per cent since the start of 2021.

However, as was the case on the way down, the stock price may overshoot our intrinsic assessment on the way up, as investors shift their focus from Telstra's earnings challenges to its asset values—a key rationale for undertaking the mammoth corporate restructure in the first place.

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Terms of the deal:

  • Telstra is selling the 49 per cent interest in InfraCo Towers (the largest mobile tower infrastructure provider in Australia with 8,200 towers) to a consortium of the Future Fund, Commonwealth Superannuation Corporation, and Sunsuper.
  • It will be managed by Morrison & Co and will operate under a board.
  • Telstra has entered into a 15-year agreement (with the option to extend) with InfraCo Towers to secure ongoing access to existing and new towers.
  • Management plans to provide further details during the August 2021 results release about the way the $1.4 billion proceeds will be returned to shareholders, including a potential share buyback in fiscal 2022.

Read Han's full Telstra report

is a senior equity analyst in the equity research team at Morningstar

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