Telstra (TLS) Share Recommendation

Credit Suisse have rates the Telstra (TLS) stock as Outperform with a share price target of $4.78. The stock analysts have pointed out that the government's $8 billion share sale will see it removed as a majority share holder, and in the analysts view this will provide the company with more flexibility to remove inefficiencies. Meanwhile Merrill Lynch have rated the stock as a Sell, Low Risk. In the stock brokers opinion, they see continuing weakness for the stock price until T3 is sold off. They value TLS at $3.28 per share. SB Citigroup also lists the telco as a Sell, Medium Risk. The stockbroker has a share price target of $3.60 for Telstra and in their view, institutional demand is priced between $2.80 and $3. Finally, stock analyst Macquarie Research Equities (MRE) have a share price target of $3.50 and in their view they see the stock trading sideways for the next 12 months.

What's happening with Telstra (TLS)? The Government has decided to sell down $8 billion of its Telstra stake through a public share offer. The remainder of the Australian Government's stake in the telecommunications company of around $14 billion will be transferred into the Future Fund where it will be escrowed for 24 months. The TLS public offer will be available to retail and institutional investors from Australia and offshore. (There have been reports that the government has been promoting TLS in Japan) The T3 sale process will include instalment receipts (similar to T2) which will carry full dividend rights over an 18 months period. As a result these instalment receipts for Telstra (TLS) may yield about 19 percent over the 18 months, which is a rather high fully franked yield. This is due to the Telstra dividend which was announced to be 28 cents per share for FY07, and in FY08 it is forecasted to be around 10 to 14 cents per share. This calculation assumes a first instalment of $2 per share and the 38 cetns dividend over the 18 month period would yield 19 percent. Final instalment will be due around May 2008. There are also ASX index implications to consider. Stock analyst MRE expect the Australian S&P/ASX index inclusion for Telstra to be delayed until the December Quarterly Review done at close of business (COB) Friday 15th December 2006. MRE expects inclusion to occur within a week of listing for the global MSCI and FTSE indices.

Telstra Corporation Limited is listed on the Australian Stock Exchange (ASX) under stock code TLS. You can view their investor website here. TLS was first listed on the ASX on 17 November, 1997. Telstra is an Australian telecommunications carrier involved in the provision of telecommunications and information services, including mobiles, internet, and pay television. Previous posts about Telstra can be found here. Find out the meaning of the recommendations in this primer. Browse for other broker recommendations. Check your charts and good luck with your share trading!