Telstra Corporation Ltd (ASX: TLS) is working on a new plan behind the scenes that could send the Telstra share price much higher.
What’s Telstra plan?
Telstra earns the vast majority of its profit in Australia. But the telecommunications behemoth is looking to diversify its earnings.
The telco already operates the largest intra-Asia subsea cable network in the region. But Telstra has a bigger plan on the horizon according to reporting by the Sydney Morning Herald.
SMH’s scoop is that Telstra is/was having talks with a private equity business called I Squared Capital. If the plan were to happen, it could see Telstra’s merge its international division with PCCW Global, which is based out of Hong Kong.
If anything is to happen, Telstra and I Squared Capital would have seemingly run PCCW Global as a joint venture.
The telco and the private equity group went as far as the data room – meaning they were doing extensive due diligence – but no formal bid has been made (yet).
Talks were occurring in February and it is “unclear” if talks are still going or if Telstra is talking with other private equity groups.
Telstra is clearly thinking internationally
A few weeks ago, the company announced that it was restructuring its business into four divisions. One of those divisions is to be the international division. The market appeared to like the news, with the Telstra share price going up.
The other divisions will include InfraCo Fixed which will own and operate the passive or physical infrastructure assets, InfraCo Towers would own and operate the passive or physical mobile tower assets and ServeCo, which will continue to own the active parts of the network, including the radio access network and spectrum assets.
I think that expanding internationally could be a really good move by Telstra. Australia is a good country to do business in, but it’s a large country with only a small population.
Asia would be a really good region to expand into. There are plenty of countries that might be able to generate good cashflow for Telstra in the coming years.
The telco can’t just rely on its local broadband and mobile business if it wants to deliver outperformance for shareholders.
Summary thoughts
According to CommSec, the Telstra share price is valued at 23 times the estimated earnings for the 2021 financial year. It doesn’t seem like it’s going to be able to deliver the capital growth I’m looking for in my own portfolio. There are ASX dividend shares I’ve got my eyes on that can offer income and growth.