Why is the Telstra share price on a high today?

Posted: 25 October 2021 12:26 pm
News
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Shares in the telecoms operator have slipped more than 6% over the last month.

Shares in telecoms giant Telstra (ASX: TLS) have not had a great run over the last month, but the stock has abruptly reversed course on Monday. It is among the most traded stocks on the ASX, and rose as much as 1.6% higher at $3.79 in early trading.

What is pushing up the Telstra stock price?

The lift comes after Australia’s biggest telecoms operator announced it had agreed to acquire the Pacific operations of telecoms firm Digicel for US$1.85 billion (AUD$2.5 billion).

Telstra will only contribute US$270 million in equity, while the Australian government will add US$1.33 billion.

The move is politically aligned with Canberra trying to stop a key piece of Pacific telecoms becoming Chinese owned.

It will still fully operate Digicel as part of Telstra International, and the business will be overseen by a Telstra-controlled board. The deal is expected to close in the next 3-6 months.

The deal seals the months-long negotiations under which Telstra had been seeking a government funding and support package to proceed with the transaction.

Telstra has ended up with quite favourable terms that only require a minor portion of the equity investment, but satisfy all its financial parameters while giving it a much larger footprint in the region.

Commercially attractive

Digicel is the largest mobile phone carrier in the Pacific and operates 3G and 4G networks in Papua New Guinea, Fiji, Samoa, Vanuatu and Tahiti with about 2.5 million subscribers.

It generated earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$233 million for the financial year ending 31 March 2021.

"Digicel Pacific is a commercially attractive asset and critical to telecommunications in the region," Telstra CEO Andrew Penn said in a statement to the ASX. "The Australian government is strongly committed to supporting quality private sector investment infrastructure in the Pacific region."

He called it a unique commercial opportunity that would be earnings accretive for Telstra.

The deal will have no impact on the company's recently announced $1.35 billion share buyback, he added, and also will not detract from its T25 strategy that is targeting annual growth rates in the "high-teens" for underlying earnings per share until FY25.

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