New Zealand Telecom: Considering a Buy (NZT)

Jun.22.06 | About: Spark New (NZTCY)

Roger Nusbaum submits: I am considering reentering New Zealand Telecom (NZT). I disclosed selling it on February 23, and I actually sold on the 22nd late in the day in the high $27's. The purchase I am considering would only be in my account, not for clients.

My sale in February was a good one in that that stock is now at $20.65 but it was a bad one in that it topped out, before I sold, above $39.

At the time I sold, I had some macro concerns about New Zealand's deficits, economic cycle and currency.

In addition to those concerns panning out to some degree, NZT was hit with having to compete for customers in a way it has never had to do in the time I have known the stock.

This chart tells the story. The kiwi is down about 10%, the ordinary shares are down close to 30% and the ADRs have done worse due to the kiwi's weakness. Lastly, the benchmark NZ 50 Index is down 6.9% from its April 7th closing high:

Concerns about NZ current account deficit have not gone away, but what has happened is that concerns about current account deficits for other countries have ramped up, in terms of investor awareness. Hungary, Turkey and Iceland come to mind as other countries that investors know much more about today than they did at the start of the year, meaning New Zealand is no longer perceived as the lone redheaded step-child on this issue.

I have no doubt that there is some demand for high yielding currencies excluding the US dollar (which obviously also has deficit issues), and while the Aussie stands to benefit from a lot of that demand, a currency like the kiwi stands to draw some of this flow, if, as I believe, it does in fact exist.

As for the stock, a lot more bad news has worked its way into the price, with the competition issue being the most important to me. The net result from this news is not yet known -- the big shoe to drop was competition, not the result, in my opinion.

For now it is on the front burner. I don't know exactly when I will buy it (but I will post here if/when I do buy it) but don't forget I am not committing client money to the idea in the near future, which should tell you something.