TLS

Here is an update on the different sectors of Australian market from market analyst Macquarie Research Equities.

Record Oil - The Impact of Black Gold

Telstra Corporation (TLS) has a target price of $4.90 and an Outperform recommendation from Australian Stockmarket analyst Macquarie Research Equities.

Telstra Corporation (TLS): Do You Own a Mobile Phone?

Telstra (TLS) has a Neutral recommendation and a $4.90 price target per share from Australian sharemarket analyst Macquarie Research Equities.

Telstra (TLS): Bouncing Off Resistance

Telstra (TLS) - Neutral Recommendation
Current Price: $4.47
Target Price: $4.90 (~7.2% Upside)
P/E: 14.8 X
Div Yield: 6.3% (100% Franked)

Telstra (TLS) Technicals

Telstra has bounced off its $4.40 Support / resistance level and is currently trading at $4.47. Next resistance levels are at $4.55 and $4.70 before hitting MRE’s 12mth target price of $4.90

Telstra (TLS) shares have fallen lower today after the government announced yesterday that it will conduct a competitive bids process to enable the build of a high-speed broadband network. An expert panel has been appointed to prepare guidelines for the bid process (including setting a timetable for the process) and also to conduct public consultation. The panel will not choose who builds the network, but can clearly influence the process with its findings. The government will control the final outcome. Timing remains unclear: The announcement was not conclusive on the critical issue of timing surrounding an FTTN build, simply stating that the expert taskforce will “settle a realistic timetable for the bids to be submitted and assessed”. The taskforce’s conclusion on timing could be anywhere between two months and a year, with a shorter timeframe favouring Telstra, and a longer timeframe suggesting a broader review of industry structure ahead of any decision. Given Telstra (TLS) is the natural builder of this network due to its existing infrastructure, delays to this process are likely to indicate dissatisfaction with the panel on pricing and access issues in Telstra's submission. A post-election result also introduces the risk to Telstra from Labour's broadband policy, which is effectively a form of network separation. A decision before the election is still possible, but unlikely: Given legislative change is required before any of the existing bids would be viable, a pre-election resolution on this issue will be difficult to achieve. Legislation would have to be passed during the two parliamentary sitting weeks in September (beginning 10 Sept and 17 Sept). However, to allow due process, a decision on the successful tender would probably have to be tabled during the August sitting weeks (beginning 7 Aug and 13 Aug). This would give the government and expert panel just under two months to accept tenders, announce a successful tender and draft the appropriate legislation. Ongoing uncertainty has been a positive for all players: A lack of clarity on timing around an FTTN rollout has been a positive for all industry players. Network operators are reluctant to drive down pricing on existing fixed line products given the uncertain service life for some infrastructure investments such as DSLAM equipment. This has delivered a very stable environment for pricing outcomes on fixed line services over the past six months (evidenced by increasing broadband ARPUs), that is likely to continue throughout the rest of the calendar year. No change. The introduction of an expert taskforce to assist in this process has been flagged in the media for a number of weeks. The critical data point will be any indication of timing around the process. Broadly speaking, the longer the process takes, the greater the risks to Telstra.

Telstra (TLS) has an upgraded share trading recommendation of Neutral and an increased share price target of $4.40 per share from sharemarket analyst Macquarie Research Equities. The telco sector has outperformed the broader market this year, as investors switch into defensive stocks offering high dividend yields. Telstra (TLS) has gained 17% this year so far (vs 10% in the S&P/ASX200), in addition to delivering a 14 cent dividend on the 14th February. Further positive news arrived this morning, with New Zealand's largest listed company, Telecom Corp (TEL), posting a better-than-expected 7.2% rise in third-quarter profit, due to higher mobile and Internet earnings, and said it would return NZ$1.1 billion to shareholders. Taking into account the fact that this is an election year, and having examined and reviewed their valuation for Australia’s largest telco, TLS, the analysts have put through the following upgrades: The appetite for a high speed fibre network (FTTN) is building: It is clear that, in an election year, both major political parties are keen to deliver Australia a high-speed broadband network. Telstra is the best placed telco to build such a network, but also has the most to lose by building it. That is, Telstra would have to forego its existing copper network returns), which provides an interesting dynamic that will play out over the next six months. The dilemma remains that there is currently little financial incentive for Telstra to build an FTTN network: Given the ~$3.5bn of capital that Telstra would need to commit to build fibre-to-the-node (FTTN), the critical issue remains how Telstra could recoup a return on that investment in light of the returns it currently enjoys on its copper network. Based on our conservative assumptions, we estimate that the investment case for FTTN currently only makes financial sense (on ROIC, NPV and EPS measures) if Telstra can increase its earnings per broadband line by around $16/month. Therefore, it appears increasingly likely that Telstra will be offered a "carrot" to build a FTTN network for Australia. The carrot could take the form of higher network returns, a government subsidy on the build (more likely on the regional build rather than the metro component), or compensation in some other area (eg recognising Telstra's claim that a significant rural deficit exists). The analyst estimates that such a carrot could add as much as 50cps to their valuation. This is relative to the analyst's existing bearish fixed line assumptions, and would reflect the direct impact of a pricing outcome or subsidy, as well as the second order impacts of Telstra moving to a fibre to the node platform. These second order impacts include reduced competition from ULL and line sharing services. Any update on fibre to the node would be a positive, while there is little downside risk to FY07 earnings guidance. There is no clear signal from the government as to whether or not it will provide such a carrot. However, the analysts believe that as the pressure builds to deliver a high speed broadband solution the risk of such a deal being done is great enough that we have included the associated 50cps valuation uplift in their target price, which moves to $4.40/share.

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.

Market analyst, UBS has the following market commentary with regards to the Australian telecommunications sector. TLS has performed in-line with the market (ASX200INDXF) ytd (+1.7%) with a nominal re-rating (+8.2%) driven by H107 results and a lack of a competitive response. SGT has underperformed (-8.8%) after outperforming in CYQ406 (+21%) while TEL continues to be plagued by domestic woes despite YPG sale optimism (-10.7%). A draft ACCC cost model prices MTA 50% below current rates (12c); TLS would be a net beneficiary everything else being equal.