Analysts remain divided
Published in The Courier Mail, January 2007
Erica Thompson
THE success of last year's $15.5 billion T3 sale and the recent strength of Telstra shares has left most analysts dumbfounded.
Yesterday when the broader market slumped more than 1 per cent, Telstra shares held firm for most of the day.
The ordinary shares and instalment receipts both finished only 1¢ lower at $4.09 and $2.66 respectively.
The instalment receipts are now trading 33 per cent above their $2 issue price.
"Overall, we think the dark days are behind Telstra," says Fat Prophets senior analyst Greg Canavan.
"This year will be about delivering on the extensive transformation plan. There are likely to be hiccups along the way, but we believe management have performed well so far and have no reason to doubt their eventual success."
Macquarie Equities client adviser David Halliday agrees and predicts the stock will continue to hold its gains during the next 12 months.
"Retail shareholders who participated in T3 have been the biggest winners out of all this and they're looking very well positioned to do better," he says.
"They're still owed their 14 per cent yield and the stock's up almost 35 per cent – that's a pretty good return in a short period of time."
But Wealth Within chief analyst Dale Gillham is less optimistic and says people who invested in the disastrous T2 float also trumpeted early profits.
"The driving force behind (that) short-term rise was the institutional investors increasing their weightings in the stock . . . and I believe this is exactly what is happening right now and why T3 has risen so strongly," he says. "While it may appear as though the current float has been successful for investors, I wonder how long this will last given what has occurred in the past."
Standard & Poor's credit analyst Colin Atkin says Telstra's prevailing operating environment is problematic.
"That includes an increasingly competitive landscape and the significant capital expenditure task that is in front of Telstra," he says.
"If you look at the amount of money they generally spend, let alone how much they are intending to spend, that is something we'll be keeping an eye on."
Private equity predators are also likely to be watching the company closely.
"Under private ownership, Telstra is a prime takeover target," says Mr Canavan.
"If the stoush with the regulator continues into 2007, a break-up of the company would be a reasonable solution."
Telecommunications analyst Paul Budde says international evidence suggests there is significant value in breaking up the structural assets of telcos.
"Telstra is going against the tide," he says.
"I wouldn't be surprised if the government comes back with some very strong regulatory changes in 2007."
However, Mr Halliday says not to forget Telstra will be a "very different beast" without the shackles of government ownership.
"The board can now get on with delivering shareholder return, which has been something that has been sharply missing in Telstra for the last two or three years."
