Don't Touch Telstra

In today's Wall Street Journal, Lyndal McFarland reports on the uncertainty surrounding the Australian government's potential sale of its majority stake in Telstra in HEARD IN ASIA: As Investors Lose Faith in Telstra, Fate of Stake Sale Is in Question.

Telstra Corp (TLS), the leading telecom provider in Australia, is 51.8% (6.44 billion shares) owned by the government, which could be selling the third and largest tranche of its shares pending a political decision on full-privatization expected at the end of this month. At current prices this equates to A$23.5 billion, or US$18 billion but people familiar with the sale process which involves big-name investment banks advising the Finance Minister say there is only enough demand for an offering up to A$10 billion consisting of both retail and institutional components.

Retail investors have gotten burned in the past as Telstra's current share price of A$3.62 is less than half the price of its second tranche sold at A$7.40 per share in October 1999 -- also its lowest level since late 1997. Telstra's dividend yield has always been attractive to retail investors and income fund managers but there is growing uncertainty whether Telstra can maintain its payout at A$0.28 per share.

Another option is for the government to move its entire stake into the Future Fund, which is 'designed to ensure the pension liabilities of government workers can be met.' Shares could subsequently be sold once Telstra's share price recovers.

Comment: Telstra CEO Sol Trujillo made enemies in the government when his firm announced annual results last week and he said he wouldn't recommit to Telstra's dividend payout due to forthcoming regulatory decisions. This put more downward pressure on Telstra's shares. And how about this mention at the end of the article:

'... international interest in Telstra is far from buoyant, with the telecom sector largely out of favor globally. Despite visiting more than 40 international funds in the past year, Mr. Trujillo is yet to draw a single major offshore investor onto Telstra's share register.' (emphasis added)

The article's author McFarland notes that among 10 brokers covering Telstra, only Credit Suisse has a positive rating on it. Citigroup, GS, and ML have all given it "sell" ratings. The median price target among the 10 brokers is A$3.87, with ML at the low end at A$3.42 and Credit Suisse at the high end at $4.78.

Telstra Corp (TLS) 1-year chart:

Comments

[mmarrin:]

Yoikes i know me=( $ 13.70) USD but if goes below 12.40 i'll buy more and wait and wait!!??? BUT[[[[ if goes sell gov't stake REMEMBER NZT Ido yr so after sale YAHOOOOOO $$$$$$ A LITTLE hOPE pls/////

2006 Aug 17 03:32 PM