Sharechat Logo

Daily ShareChat: Telecom

By Jenny Ruth

Sunday 19th June 2011

Text too small?
 Jenny Ruth

Valuing Telecom's Chorus, which is expected to become a separately listed company, probably late this year, is challenging because of the lact of details on its capital structure, assets divested and assumptions on UFB (ultra fast broadband) take-up rates, says Michael Wu, an analyst at Aegis Equities Research.

“A rough valuation sees Chorus' fibre enterprise value at around $2.6 billion,” Wu says. “In its annual regulatory review to the Commerce Commission, the regulator values Chorus' fixed assets at around $5 billion on a net replacement cost basis, but this includes copper fixed assets,” he says.

How the regulator values Chorus is important as it will become a regulated asset.

“The return on capital allowed for natural monopolies such as electricity and gas distribution assets is typically determined by weighted average cost of capital and regulated asset base.” Wu says he has changed his valuation methodology to sum-of-the-parts and has raised his per-share valuation to $2.70 from $2.05.

“There is further upside by participating in the UFB rollout in Christchurch and Rangiora.”

The estimated cost of the UFB rollout per premise ranges between $2,250 and $2.750, implying total capital spending of $1.9 billion to $2.3 billion. While cost increases are a risk, management is confident costs will fall within that range, Wu says.

Recommendation: Accumulate (upgraded from hold).

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Telecom Corporation of New Zealand (TEL)
Telecom in drive to latch on to growing data usage with 4G mobile launch next month
Telecom lines up to buy 700MHz spectrum to extend reach of 4G network
Telecom backs setting copper prices until 2020, warns against getting too far away from input cost
Telecom puts $60M price tag on new Auckland data centre, Hawkins, AECOM win build
Telecom ends jobs purge, looks for ‘more sophisticated’ ways to save money
Telecom FY earnings fall to bottom of guidance range, sees unchanged dividend in 2014
Telecom takes spat with Vodafone to regulator after dropping court action
Telecom unbundling key to regulator's copper conundrum
Telecom lures customers to faster services in EPL deal