TLS - Telstra Corporation

McCoy Pauley said:

I suggest you do your own research, syang12. No member of ASF can give you financial advice.

I have to confess that I'm bearish on TLS long-term. The NBN has the big ability to really reduce the income earning potential of TLS and unless TLS can negotiate a favourable outcome with NBN Co., there is the potential for NBN Co to wipe billions off the assets sheet of TLS.

I'm not sure about the pedigree of the CEO, either. I do have confidence in the chairperson, having seen her work wonders at COH in a previous role. But the CEO will need to be very adroit at working through the political ramifications of the NBN. In going up against Sen. Conroy, David Thodey will need to be very politically astute.

I'm also concerned about the extremely high debt to equity ratio of TLS.

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Thanks, McCoy Pauley.

I'm quite new to the market(only 10 months) and very new to this forum. I'd held ANZ for almost 9 months. It gained more than 40%. However, during the same period, Tls remained silent. That's why I switch from ANZ to TLS. Plus the company devidends are coming soon.

And you are right. I need do more research on the company and industry background.

Thanks again

I still think that the best strategy for TLS and its long suffering shareholders is to split the company. Current shareholders get one for one in, say, Telstra Utility(TUT) plus one for one in, say, Telstra Info. Technology (TIT).

TUT runs the NBN and the existing copper network. There should be no incentive to favour any perticular customer. Good boring safe low risk income from a utility.

TIT can get on with the business of selling mobile phone services, internet services, and whatever comes next. And can also look to do the same overseas. Higher risk and volatility, and higher potential for profit.

The current situation will have TLS senior management continually fighting the govt. and the regulator rather than focussing on new revenue.

Bill to split Telstra delayed again by the Government.

http://www.theaustralian.com.au/bus...the-senate-again/story-e6frg8zx-1225825242498

Interesting to see how this plays out. The last TLS said anything official was back in mid-December 2009 when TLS announced that it had agreed the foundations for the negotiations with the Government.

As I noted above, I'm bearish on the long-term future of TLS. Sen. Conroy will like nothing better than to whack the Opposition over TLS and that, IMO, means that TLS will suffer, just so that Sen. Conroy can trumpet to the voters that, unlike Sen. Coonan and the other Liberal telco ministers before her (Alston, I think?), Conroy can control TLS and get TLS to dance to his tune.

I think a bearish outlook on TLS is a safe outlook. They've minimal growth potential and a lot of regulation risks.

But maybe I am bias as they've done wrong be me too many times!

1H10 report out now - see here.

Revenue and profit both down on the corresponding period from 2008/09. Dividend held at the same level (14c per share fully franked). Operating expenses fell 4.8%, which was a bigger fall than the revenue fall.

Interesting to note TLS' comments on the discussions with the government concerning the NBN. They're very short, as far as I can tell.

DeCal said:

I think a bearish outlook on TLS is a safe outlook. They've minimal growth potential and a lot of regulation risks.

But maybe I am bias as they've done wrong be me too many times!

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watch that PSTN decline, initially 1-2% then 4.x% now up to nearly 7%
it's a scary trend ..if it decline any faster they are in for a rude awakening

with smaller rival taking their broadband and wireless market how are they going to make up for PSTN lost revenue?

plus broadband market is now is fairly complete and saturate, they have to steal rival customers and with price struture like TLS I doubt many will move over...

PS: this quater they can add me in as 1 more getting rid of LAN line and all mobile and VoIP all with iinet

plus broadband market is now is fairly complete and saturate, they have to steal rival customers and with price struture like TLS I doubt many will move over...

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I can confirm this. Just went shopping for ADSL and TLS were the most expensive of all I looked at, even moreso if you don't want to use them for your landline.

TLS share price absolutely pounded down today (almost 6.0% drop). Missing market expectations and no update given on the negotiations with the Govt on the NBN really hammered TLS today.

Mmm, last week TLS suffered 2 big DOWN days... interesting to note that the Government FF will be able to sell their shares again soon..... may find TLS to be under the $3 mark?

Surely TLS must make a deal of some sort and be a big player in the NBN.... one can only help this news raises the share price to atleat $3.34 so I can come out even....

Its sad that the Government is constantly ******* TLS in the rear end.

BrightGreenGlow said:

Its sad that the Government is constantly ******* TLS in the rear end.

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To be fair honours here have been shared somewhat between the Government and TLS's management/board.

There has been a long history of poor decisions by the board of directors itself. These include;

1) Purchasing overpriced assets at the height of the dot-com boom (Who remembers Reach ?).
2) Going to war with the government over FTTN (Sol Trujillo).
3) And more recently not adapting quikly enough to changing market conditions.

drsmith said:

2) Going to war with the government over FTTN (Sol Trujillo).
3) And more recently not adapting quickly enough to changing market conditions.

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I'm not so sure about that. it was the war of the wholesale pricing that did the damage yet I'm not so sure they had any other way to go, maybe a tactical change but still they had to fight the battle. And really it was with Samuel & competitors.

And on the adapting to changing market thats just wrong. Telstra is in first position with new tech, note the world first roll out of 3G Dual Carrier just announced. The unavoidable problem is that their highly profitable PTSN business is fading away very fast. They are positioned to cover it but they will not have a monopoly in it. There is nothing they can do about it, Monopoly is gone. That is where their problems lie.


Just on that upgrading of 3G, ever increasing the pressure on Conroy's 50 bil disaster. Thats where their biggest advantage now is, spread of fast 3-4G wireless.

Some good points there.... where do you guys see the TLS price by mid year though? Say if the FFund sell another heap of shares, could we see it in the $2.80s??

Trembling Hand said:

I'm not so sure about that. it was the war of the wholesale pricing that did the damage yet I'm not so sure they had any other way to go, maybe a tactical change but still they had to fight the battle. And really it was with Samuel & competitors.

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They could have submitted a valid proposal in relation to FTTN.

Trembling Hand said:

And on the adapting to changing market thats just wrong. Telstra is in first position with new tech, note the world first roll out of 3G Dual Carrier just announced. The unavoidable problem is that their highly profitable PTSN business is fading away very fast. They are positioned to cover it but they will not have a monopoly in it. There is nothing they can do about it, Monopoly is gone. That is where their problems lie.

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PTSN is fading much faster than the directors anticipated judging by the revenue downgrades.

Trembling Hand said:

Just on that upgrading of 3G, ever increasing the pressure on Conroy's 50 bil disaster. Thats where their biggest advantage now is, spread of fast 3-4G wireless.

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What's the garantee that the NBN will even go ahead in any substantive form ?

Policy failure seems to be this government's defining characteristic.

BrightGreenGlow said:

Some good points there.... where do you guys see the TLS price by mid year though? Say if the FFund sell another heap of shares, could we see it in the $2.80s??

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If you take out the dividend (14cents - goes ex on Friday) it is already trading below $3 and i'm willing to bet that a lot of people are only holding until it goes ex. I think more blood letting will start monday.

My opinion only and I hold no shares - although I infrequently short term trade it.

malachii

I don't have much faith in TLS board however at 28c dividend any price under $3.20 is still a bargain. We're talking 8.75% + franking credits return per annum, no need for Capital Growth.

What I have faith in is that if the govt hammers TLS anymore the dividend will drop and then lots of mums and dads (who vote) will not be happy. A lot more voters hold TLS than any other stock, it all very well for Rudd to prop his NBN (knowing that a lot of voters only care about the dividend) but anymore squeezing of TLS and voters will not be happy. Thus I'm tipping that all else being equal TLS will hover around $3-$3.50 for awhile making enough cash to pay the dividend.

8.75% not bad value, especially as there is a small chance of upside. Just my $0.02 worth very interested if other people think I should sell it all.

Taltan said:

I don't have much faith in TLS board however at 28c dividend any price under $3.20 is still a bargain. We're talking 8.75% + franking credits return per annum, no need for Capital Growth.

Thus I'm tipping that all else being equal TLS will hover around $3-$3.50 for awhile making enough cash to pay the dividend.

8.75% not bad value, especially as there is a small chance of upside.

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If the PSTN is 30% of their biz and its falling at a rapid rate, in fact falling at an accelerated rate, and their other juicy biz is under pressure from competitors. How long is that 8% div gonna last. There's a fair amount of unknown risk in that div I reckon.

They still own the last mile of copper to the home and they're in a pretty defensive industry. Also PTSN is surely not news. I agree the 8.75% could drop but I doubt by much.

There's a lot of regulation risk in the current price and I think that if it starts to fall away too much I bet our pollies would rather change some laws than annoy the voters. Profits maybe dropping but if you modify ACCC/NBN rules TLS becomes very profitable.

I view TLS like the banks, if they make too much the govt brings out the sledgehammer (so upside is minimal) however there's definately a floor to keep paying that dividend

Keep holding and hoping TLS will do better and turn around but 10 years of under-performing I cant see much future ahead.

TLS may own the last mile but if people dont use them, how are they going to make money?... People gone wireless, mobile and ditch PSTN all together

and remember PSTN margin is big and fat, for every bucks they lose in PSTN they need to make more than one buck else where to retain the same profit.

I see TLS holders in the same basket case as Fosters

hoping each year their share price will increase only to face one disappointment after the other...

TLS do have a moat but they dont know how to defence it that moat is disappearing fast each day as their small rival keep dig in a few percent each year

then you look at a small player like CAB who has iron grip on taxi payment system and it can fence off rival 10 or 100 times its size...Visa got a bloody nose and Mac bank got bloody nose when they try to cut into CAB market.
they all either quit the game or play by CAB rules

Have patient if you want TLS you can get them below $3 very soon...as soon as future fund start selling a few more percent

ROE, I have to agree with you. I am thinking about selling my Telstra shares as there is little chance of upside and many reasons for downside and dividend reduction. The only hope is the NBN outcome does something to boost the SP, but that when I will sell and move on to something else.

Taltan,

The 2 problems I have with your theory are:

- While at first an 8.75% return sounds great, if the price drops (as I believe it will) then you are losing $. It wont take long for you too eat up your whole dividend on capital loss. I don't know what you paid for your shares but if you have bought anytime in the last few months - you may already be sitting on a loss the size of the next div - or maybe more. If you've owned the shares for years you have either made a large capital loss (shares were above $9 i think at one stage) or - if you bought them on the initial float - you have made no capital gains for years. Even if you were astute enough to buy them below the current price - you still will have seen very little capital growth and I suspect more likely a loss.

You say yourself that there is not much hope of capital gain so again - your money is not working that hard and with massive bad news around and a very large shareholder making it known they want to unload large amounts of stock - your downside risk is quite high.

- The other problem I see is with the div itself. The company has for years been borrowing money to pay the dividend. This cannot go on forever. The age old response "we'll pay it with future cashflow growth" is looking less and less plausible as they are now admitting their "cash cow" - the PTSN - is declining at an accelerating rate. Unless they can pull a "non capital intensive" cash cow out of the hat - surely dividends must reduce. This will cause a decrease in share price and now we've been hit with a double loss - a capital loss and less dividend.

This is my opinion only - I dont hold Telstra although I admit I am watching it in case of a short term trade.

Just to finish I'll give you a real world example. My mother bought both TLS and WOW when they first floated. For the first few years she made good money out of both but then the inevitable - "I need some cash for..." came and she decided to sell WOW because TLS was paying a better dividend. The difference in her returns between then and now are such that I refuse to calculate them because I know it will only cause her more grief!

malachii

PS - FWIW the "last mile of copper" is now pure B.S. We moved house 6 months ago and we decided not to get a home phone. We use our mobiles and I use wireless internet. We went from having everything through Telstra to nothing - and the only difference we notice is we dont have any problems. We are not the only ones!