Telstra bounces back
Published in the Courier Mail, September 2009
by Anthony Marx
Analysts remain divided over the long-term impact on Telstra shares after the Government unveiled plans this week for a dramatic shake-up of the nation's biggest telco.
Telstra shares slumped 4.3 per cent to $3.11 on Tuesday, wiping out $1.75 billion in value as investors reacted to news the company would have to split its retail and wholesale arms.
But they regained almost all the lost ground on Wednesday as the market came to grips with the widely expected shift, which the Government hopes will spur greater competition and result in cheaper phone and internet services.
Yesterday, the stock closed down 1C at $3.25 - the price it finished on the day before the Government announcement.
Despite the prospect of a tougher competitive environment, a range of brokers this week maintained their "buy" recommendation for Telstra.
Among them were Royal Bank of Scotland, UBS, Goldman Sachs JBWere and Merrill Lynch.
At least two other institutions recommended Telstra remain a "hold".
UBS described Telstra as "oversold and misunderstood" by many investors, while Merrill Lynch said the upheaval had not altered its earnings forecast or valuation of the telco.
JP Morgan said Telstra could benefit its shareholders by eventually steering customers to the planned $43 billion national broadband network and phasing out its traditional landline assets.
An industry group called Competitive Carriers Coalition noted that British Telecom representatives had told a Senate inquiry last year that its share price lifted after implementing a functional separation. "So it is not clear that Telstra shares will necessarily fall," the group said.
But analysts Fat Prophets urged caution: "The value change to Telstra's share price remains an unknown quantity until the company's separation plan is revealed. We think investors should wait for more detail."
Dale Gillham, chief analyst at boutique investment company Wealth Within, noted that while many investors held Telstra shares for its dividends, there were better stocks that also paid dividends.
It takes a lot of dividends to recoup a fall of over 60 per cent, which Telstra has suffered over the past 10 years”, he said.