Is the Telstra share price good value in July?

The Telstra Group Ltd (ASX: TLS) share price was on form on Tuesday.

The telco giant’s shares ended the day 2% higher at $3.73.

Why did the Telstra share price rise?

Investors were buying Telstra’s shares after it announced an increase to its mobile prices.

The changes will see prices on most Telstra mobile plans increase by between $2 to $4 per month. Management noted that these changes aimed to balance cost of living pressures “with its need to continue to invest to manage technology evolution and continued strong customer demand on its mobile network.”

Based on its share price performance yesterday, it seems that the market believes the company has got it just right with these increases.

Analysts at Goldman Sachs appear to believe this is the case. They also see the price increases as a sign that competition in the telco market remains rational. The broker commented:

These plan changes highlight: (1) mobile market rationality remains (particularly when combined with the recent Optus increase); (2) TLS mobile earnings growth remains strong, driven by subscribers and ARPU, despite the uncertainty created by TLS May-24 update; (3) flexibility benefits of a non-CPI linked pricing mechanism (i.e. greater than CPI price rises on core plans, but no price increase on the more price sensitive Starter plans, which we believe should also help mitigate any concerns around price gauging); (4) Telstra TLS FY25 guidance should likely be narrowed to $8.5-$8.7bn at its Aug-24 result (from $8.4-8.7bn) which would be its typical $200mn range, now the company has much greater certainty around its mobile pricing outlook.

Goldman estimates that the changes will have a positive impact on its average revenue per user metric (ARPU) and its earnings and dividends per share. Its analysts add:

We estimate the postpaid plan changes to drive a blended A$2.50 ARPU increase for Telstra. Adjusting for GST, consumer mix (i.e. 2/3 of base) and c.9 month impact, we expect this to contribute $1.14 of ARPU growth, before any potential spin-down. When combined with the significant JB-HiFi and smaller Belong mobile plan changes (noting that JB-HiFi plan changes take significant time to wash-through the base), we now expect $1.20 ARPU growth (from $0.80) and marginally stronger mobile ARPU trends into FY26 (GSe Postpaid +1.5% growth, from +1.0%, Prepaid +1.0%, from 0%). Collectively, this drives our FY25 EBITDA to $8,595mn, FY25/26 EPS +1/3% and DPS to 19.0/20.0c (from 18.5/19.5c).

Time to buy?

The broker thinks that this is another signal to buy the company’s shares and continues to see a lot of value in the Telstra share price.

In response to the update, Goldman has retained its buy rating and lifted its price target to $4.30. This implies potential upside of 15% for investors over the next 12 months. It also expects dividend yields of 5.1% in FY 2025 and then 5.35% in FY 2026.

The post Is the Telstra share price good value in July? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.