Telstra Faces Uncertainty with Valuation

Submitted by Jim Thesiger on 16 September, 2009 - 15:37

According to an investment bank, the largest telecommunication carrier of Australia- Telstra (TLS) could see its share price increasing more than 40 percent in the next twelve months. Telstra was rated a buy by USB with a 12-month price target of $4.55. USB also stated that the company was “oversold” and the changes proposed by the Government were not interpreted in the right way. Telstra shares were trading at $3.20 by 11:30 am AEST, which was 2.89 percent or 9 cents higher than yesterday. Telstra shares were dumped by the investors yesterday following the speculation that the company could be dismembered by the Government. The dumping eventually led to the surge.

The declaration of fundamental changes to telecommunications regulation, competition watchdog’s victory and the junior telcos of Australia had demoralized the Telstra shareholders and brought disappointment for David Thoidey, the new chief of the company. The news led to the fourth biggest trading day for the company that saw changing hands of 290 million shares. According to USB, the structural separation of the company would help to crystallise the value in the company's assets and fixed-line business. Yesterday’s massive sell off was termed as an overblown response to the Government decision by USB analysts.

Broadband Minister Stephen Conroy yesterday stated that Telstra would be forced to separate its wholesale and retail divisions into two different institutions according to the new rules. The company may also get banned from obtaining additional spectrum for advanced mobile phone services if it refuses to split its shares between hybrid fibre coaxial (HFC) cable network and Foxtel (50 percent each). However, Senator Conroy stated that he could remove the conditions regarding Foxtel and HFC if Telstra willingly goes for the structural separation. It is to be mentioned that the Australian Government is determined to move forward with its plan to make the country’s prime telecommunication companies go through essential separation, something that will pave a level playing field ahead of construction of the national broadband network (NBN) that worth $43 billion.