TLS - Telstra Corporation

Warren Buffet II · 25 January 2007

This is a comment from an interview by Alan Kohler to Ivor Ries, telco analyst with EL & C Baillieu, www.eurekareport.com.au

So you’re saying that Telstra is a target for a private equity takeover?

Most definitely, yes. I’d imagine that most of the world’s big private equity houses would be doing their sums on Telstra.

Do you think it’s a $5 stock?

Certainly most of our valuations are sort of 50 ¢ either side of $5 but that’s … we’re applying pure old-style investment analysis for passive investors. For a private equity person who wanted to buy it, you know, they could comfortably pay $6 or $6.50 and still walk away with a very high return on their equity.

WBII

ROE · 25 January 2007

Keep dreaming on that price.. no private equity going to buy a company that are heavily regulated and too many uncertainty going into the future....

If the rumour was true why TLS price has been going south every since Monday?

TLS will slip below $4 by the year end

ROE · 27 January 2007

http://www.theage.com.au/news/busin...dband-price-war/2007/01/26/1169788692590.html

ROE · 7 February 2007

hmmm

http://australianit.news.com.au/articles/0,7204,21183574^15306^^nbv^,00.html

she is one of the better CIO around, she transformed Qantas IT system beautifuly... this is not a good sign for TLS when one the good staff just get up and go.

malachii · 7 February 2007

As someone who deals with the system she set up at Qantas everyday I wouldn't necessarily say that she transformed Qantas IT beautifully!! She also left Q for Telstra a few weeks after re-signing a very large contract with Telstra. Hmmmm - it makes you wonder!

malachii

TheRage · 15 February 2007

So Telstra have released H1 report. Revenue is up 2% but operating expenses are also up 9% and most importantly Net profit after tax is down 20.1%. Apart from struggling to read the poor pdf release due to the grainey quality, these results were expected and probably won't affect Sp too much. The thing I really hate about Telstra announcements is that they always talk about where they are superior to others. They never seem to mention where they can improve.

Warren Buffet II · 15 February 2007

ROE said:
http://www.theage.com.au/news/busin...dband-price-war/2007/01/26/1169788692590.html

Where is little ROE today? I guess he is trying to find some article about Telstra.

TLS is getting close to 5% up today.

WBII

nomore4s · 15 February 2007

Warren Buffet II said:
Where is little ROE today? I guess he is trying to find some article about Telstra.

TLS is getting close to 5% up today.

WBII

lol, He is quite negative about Telstra isn't he. At least the market doesn't seem to agree with him at the moment.

TLS up 17c today

nomore4s · 15 February 2007

mmm very good day closed above $4.50 & TLSCA above $3.10

Kennas will be a happy man in Mexico

TheRage · 15 February 2007

nomore4s said:
lol, He is quite negative about Telstra isn't he. At least the market doesn't seem to agree with him at the moment.

TLS up 17c today

To be honest I think like ROE on this stock. I can see why WBII likes the cashflow with this stock and the fact that it is a monopoly but the exuberant enthusiasm that the share is currently experiencing has no merit. The share announces a decrease in NPAT of 26% and it goes up 5%. We have become so conditioned to this share performing so badly that when the announcement isn't quite as bad as we thought it might be we reward it by pushing the Sp higher. A simple 3 year analysis of the stock on forecasted earnings reveals the true picture. Forecast earnings in 2009 are 27.3 cents. On current price $4.50 PE ratio will be 16.48 which is higher than the current PE of 15.4. Average 9 year PE is 18 so even at this level SP in 3 years on projected earnings is $4.91. Shareholder return = 4.91-4.5 = 41 cents. 0.41/4.5 = 9.1% return / 3 years = 3.03% return. If we factor in forecasted dividends which are being paid partly out of earnings we get a better return .26+.26+.27 =0.79. Overall return = 0.79 +.41 = 1.2. 1.2/4.5 = 26%/3years =8.88% yearly return. Adding back franking credits and the return becomes better again. The problem is that there are better opportunities out there. Net Tangile Assets seems to be steadily declining and current liabilities as well as long term liabilities keep getting bigger. Current Liabilities are almost twice current assets at 8 billion and will continue to grow over the next few years. Long term debt is 11.4 billion dollars which would take 4 years of current earnings to pay off providing that no dividends were paid. If telstra cleared all its debt it would take 6.5 yrs to payoff providing no dividends were paid and assuming flat earnings.

Anyway I am glad that those who own Telstra including my father are starting to see some increase in Sp expecially after it's poor performance. Just remember where the exit sign is when the final instalment payment on the T3 offer is due.

michael_selway · 15 February 2007

TheRage said:
To be honest I think like ROE on this stock. I can see why WBII likes the cashflow with this stock and the fact that it is a monopoly but the exuberant enthusiasm that the share is currently experiencing has no merit. The share announces a decrease in NPAT of 26% and it goes up 5%. We have become so conditioned to this share performing so badly that when the announcement isn't quite as bad as we thought it might be we reward it by pushing the Sp higher. A simple 3 year analysis of the stock on forecasted earnings reveals the true picture. Forecast earnings in 2009 are 27.3 cents. On current price $4.50 PE ratio will be 16.48 which is higher than the current PE of 15.4. Average 9 year PE is 18 so even at this level SP in 3 years on projected earnings is $4.91. Shareholder return = 4.91-4.5 = 41 cents. 0.41/4.5 = 9.1% return / 3 years = 3.03% return. If we factor in forecasted dividends which are being paid partly out of earnings we get a better return .26+.26+.27 =0.79. Overall return = 0.79 +.41 = 1.2. 1.2/4.5 = 26%/3years =8.88% yearly return. Adding back franking credits and the return becomes better again. The problem is that there are better opportunities out there. Net Tangile Assets seems to be steadily declining and current liabilities as well as long term liabilities keep getting bigger. Current Liabilities are almost twice current assets at 8 billion and will continue to grow over the next few years. Long term debt is 11.4 billion dollars which would take 4 years of current earnings to pay off providing that no dividends were paid. If telstra cleared all its debt it would take 6.5 yrs to payoff providing no dividends were paid and assuming flat earnings.

Anyway I am glad that those who own Telstra including my father are starting to see some increase in Sp expecially after it's poor performance. Just remember where the exit sign is when the final instalment payment on the T3 offer is due.

Hi Can it surprise withs its earnings forecasts? M & A also maybe?

EPS(c) PE Growth
Year Ending 30-06-07 26.5 16.5 -15.2%
Year Ending 30-06-08 27.5 15.9 3.8%

Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 31.2 26.5 27.5 27.3
DPS 34.0 28.0 28.0 28.0

Nice sustainable payout ratio!

thx

MS

giss · 15 February 2007

this nxt G thing is going to be big & there baby only for the next few years australia wide. It might not be a complete replacement for the losses occuring in converging tech but its going to be a constant source of good news to plug the holes. I wouldn't be surprised if the share price keeps rising up to say $5.50 in the next 6 months.

TheRage · 16 February 2007

michael_selway said:
Nice sustainable payout ratio!

thx

MS

Hi Michael,

I can't tell whether your being sarcastic or not. The payout ratio is certainly sustainable but at the expense of using full earnings and a little extra debt to cover it. I prefer companies that can afford to pay dividends not ones who pay them because the shareholders would bail without them.

cheers
ryan

Warren Buffet II · 16 February 2007

TheRage said:
Hi Michael,

I can't tell whether your being sarcastic or not. The payout ratio is certainly sustainable but at the expense of using full earnings and a little extra debt to cover it. I prefer companies that can afford to pay dividends not ones who pay them because the shareholders would bail without them.

cheers
ryan

It (pay divids and increase share price) isn't what shareholders for an income type of share want?

If they have the cash flow to pay divids from debt that is OK for me and for any other shareholder and that is what Telstra has been doing for many years, so it is not something new.

WBII

TheRage · 16 February 2007

Warren Buffet II said:
It (pay divids and increase share price) isn't what shareholders for an income type of share want?

If they have the cash flow to pay divids from debt that is OK for me and for any other shareholder and that is what Telstra has been doing for many years, so it is not something new.

WBII

Warren I have been following telstra for a very long time due to my father's interest in the share and am familiar with their debt structure etc.

Here is a little food for thought. On current long term debt of 11.4 billion telstra is paying 1 billion dollars a year on interest alone. Lets assume for interest sake that Telstra has no hedging and no fixed interest and the markets interest rate ramps up to 10% then Telstra debt commitment becomes even higher. On recent and predicted cash flows telstra earnings are predicted to be between 3-5 billion over the next few years. over a 1/4 of earnings are being used to pay off the interest on debt. To further complicate this more debt is being added due to payment of dividend in excess of earnings further compounding interest payments. I can appreciate that everyone's long term view on this stock is bullish due to the supposed cost savings, improvements in technology, monopolistic nature of the company, but I am waiting until I can see debt being paid off before I get too excited or earnings doubling. Good luck on your investment.

UMike · 16 February 2007

FYI

Westpac Stock broking has given them an intrinsic valuation of $5.10.

TheRage · 16 February 2007

UMike said:
FYI

Westpac Stock broking has given them an intrinsic valuation of $5.10.

Thank you but I don't need a stock broker to calculate the intrinsic value of a stock when I can calculate it based on future cash flows for myself. I certainly hope you are right though it would be nice for my father to regain some ground on his dwindled return on this stock.

UMike · 16 February 2007

TheRage said:
Thank you but I don't need a stock broker to calculate the intrinsic value of a stock when I can calculate it based on future cash flows for myself. I certainly hope you are right though it would be nice for my father to regain some ground on his dwindled return on this stock.

Yes but some of us aren't as smart as you.

I am always happy when others recognise an undervalued stock that I have previously recognised.

ROE · 16 February 2007

Warren Buffet II said:
Where is little ROE today? I guess he is trying to find some article about Telstra.

TLS is getting close to 5% up today.

WBII

Telstra fundamental hasnt change since last year, the price gone up because fund managers is pumping money into the stock for yield, nothing special about Telstra today than it was 10-12 months ago.

This dog still face lot of challenge ahead, regulation, google going to hurt their sensis earning in a few years.... if ACCC is successful with their case, there go alot of line rental revenues because people like me will get rid of phone rental and have it just for ADSL and use mobile and VoIP. Debt level is also high on this dog, if sudden movement in interest rate will cause problems for it.

There are alot more stock out there that perform much better than TLS and I put my money in those stocks.

PS: if you hold a stock long enough it will eventually go up but you have to compared against other stocks and TLS is certainly a real dog.
put the same money you put into TLS a few years ago into CBA/WOW/BHP/MBL etc...and you come out way way way ahead.

ROE · 16 February 2007

Warren Buffet II said:
It (pay divids and increase share price) isn't what shareholders for an income type of share want?

If they have the cash flow to pay divids from debt that is OK for me and for any other shareholder and that is what Telstra has been doing for many years, so it is not something new.

WBII

NO I dont want a company to pay me dividend when it takes on extra debt to cover it and take on debt to fund its infrastructure..

you look at all Wonderful company and none of those do anything like it.
they pay 50-60% payout ratio, the rest they use for cap ex and increase equity in the company. TLS is like a guy that live from pay cheque to pay cheque. They spend everything they earn then take on more debt when they need the cash to buy a car or TV or whatever, after a series of bad moves they lost their job and they go bankrupt.

I got nothing against TLS, the figure speak for themselves I once owned this stock but not until it sell at Bargain price 3.50 and I pick it up and offload them when they hit above $4 because I dont think it's a good stock fundamentally..the onlything TLS has that sustain their earning is monopoly on copper line, not good business.

The stock is higher and I sold them out earlier but I never ever regret my decision on a profit. I work with my systems and it make me money and I dont intend to change it because of 1 or 2 stocks.

TLS - Telstra Corporation

Warren Buffet II

ROE

ROE

ROE

malachii

TheRage

Warren Buffet II

nomore4s

Commonsense isn't that common

nomore4s

Commonsense isn't that common

TheRage

michael_selway

Coal & Phosphate, thats it!

giss

TheRage

Warren Buffet II

TheRage

UMike

Klutzing in Thai

TheRage

UMike

Klutzing in Thai

ROE

ROE

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