Telstra Corporation (TLS) Share Trading Update

Submitted by Craig Strzelecki on 30 March, 2007 - 12:57

Telstra Corporation (TLS) have an upgraded share trading recommendation to Hold and an increased price target of $4.25 per share from market analyst Citigroup Investment Research. The analyst's forecasts are predicated on intensifying fixed line competition in 2HCY07 which could prove optimistic. Consequently they have revised their scenario analysis and now attribute a 30% (cf 5%) probability to the “Bull Scenario” that competitors gain minimal traction. CIR anticipate a sentiment shift over the next six months with; (i) 2H07e result with +40% EBIT growth; (ii) the possibility of TV show downloads to mobile & PC; (iii) upgrade of HFC to 30Mbs, and (iv) Nokia handsets in the Dec half counteracting regulatory risk in the short term. The analyst no longer expects TLS will subsidise 1.7m CDMA subscribers. It may actively migrate less than 50% of its CDMA base which sees our FY08e & FY09e NPAT increasing by 5.6% & 6.4% respectively. Telstra is creating a broadband barrier to entry on supply side (e.g. 30Mb/s upgrade on HFC). However they still don't have visibility that consumer demand will deliver the revenue & margin to fill the gaps. The analyst analysis suggests mobile or broadband ARPU's need to grow between $4 and $26 per subscriber and generate 70% - 80% EBITDA margins across 50% of the subscriber base to meet management’s revenue and margin targets by FY10e. A regulatory failing despite access pricing for competitors falling 67%, the competitive threat in fixed line appears to be stalling, giving rise to a potential overhaul of current telco regulation.

Telstra Corporation Limited is listed on the Australian Stock Exchange (ASX) under stock code TLS. You can view their investor website here. TLS was listed on the ASX on 17 November, 1997. Donald McGauchie is the chairman of Telstra and the managing director/CEO is Solomon Trujillo. The company is a telecommunications Carrier and provides telecommunications and information services, including mobiles, internet, and pay television. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade TLS. Check your charts and good luck with your share trading!

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