Telstra share price surge a reward for patience: what comes next?

Australia’s biggest telco has 1.2 million shareholders and is finally putting financial runs on the board. Will Telstra’s good form continue?

Data and mobile services are a necessity, and Telstra shares are benefiting.

Long-suffering Telstra shareholders are finally seeing fresh life in the telecommunications giant after decades of struggles.

Shares in the company are at six-year highs and a most analysts and brokers rate it a “buy” despite its strong recent performance.

New CEO Vicki Brady has enjoyed a share price honeymoon since she took Telstra’s reins last September, when the stock was trading below $4. On Friday Telstra closed 2c higher at $4.37, up 9 per cent in nine months and up 63 per cent from its November 2020 lows.

When Telstra listed on the ASX in 1997 it was the nation’s biggest company with a market value of $43 billion and 1.8 million shareholders. Today its market cap of $50 billion ranks it as Australia’s 11th largest listed company, and it now has 1.2 million shareholders.

Telstra CEO Vicki Brady started her role in September. Picture: Sam Ruttyn

Its shares could continue climbing, with many forecasters putting price targets above $4.60 on the stock.

Baker Young managed portfolio analyst Toby Grimm said the Telstra turnaround had been “a long time coming”.

Many investors were burnt paying $7.40 per share in the T2 second tranche float of Telstra shares during 1999’s tech boom, and in the past “there was a supply of sellers any time the stock rallied”, he said.

Mr Grimm said Telstra was benefiting today from its ability to pass on higher fees for mobiles – “the jewel in the crown” – in a more rational market where competitors were not slashing prices to grab market share.

“After years of becoming a leaner machine, Telstra is showing it can compete,” he said.

“There is the perception they are higher quality, more reliable and with great coverage in an area that has become a necessity.

“After a decade of declining underlying earnings, the market is now expecting earnings growth from Telstra.”

The recent rally meant there might be better entry opportunities in the future, “but we are pretty happy to be holding it”, Mr Grimm said.

This week Telstra announced it would increase prepaid recharges by $5 per month across all plans, while postpaid service prices are expected to rise 7 per cent in July in line with inflation.

Shaw and Partners senior investment adviser Jed Richards said data consumption was resilient in every economic environment.

“Add smart homes to that equation and data consumption is only going up,” he said.

Childrens’ thirst for data is strong whatever the economic circumstances. Picture: iStock.

“Telstra is still clearly the leader in Australia for providing data … when it listed they were pretty much a government-run business and data didn’t exist – back then it was phone calls and fax machines.”

Shaw and UBS have a neutral outlook for Telstra shares, while firms including Morgan Stanley, Macquarie and Morgans rate it a buy.

“Although the story is great, their share price has acted accordingly,” Mr Richards said.

Goldman Sachs said the telecommunications sector overall was positive in the first half of 2022-23, and said inflationary pressures facing the sector should be manageable.

It forecast rising revenue, was bullish on mobiles, and reiterated its “buy” recommendation for Telstra with a 12-month target price of $4.60.

“We continue to prefer Telstra within the ANZ Telecoms sector, given its defensive low-risk earnings and dividend growth is attractive,” Goldman Sachs said in a research report.

Macquarie Research said Telstra would benefit from the mobile market rationalising.

“Telstra was a first mover for mobile price increase,” it said in a report released Friday.

“Increasing the dividend faster than anticipated would be a positive event.”