By Jenny Ruth
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Friday 23rd April 2010 |
Text too small? |
Telecom's earnings downgrade came as no surprise and his forecasts were already marginally below the new guidance, says Tony Sherlock at Sydney-based Aegis Equities Research.
The downgrade reflected recent adverse regulatory decisions, a softening revenue outlook due to lower mobile phone revenue, price pressure in voice and data markets and flow-on impacts of the economic downturn.
"We continue to believe Telecom faces continued medium-term earnings risks, largely flowing from the negative outcomes from regulatory reviews and the ridiculously low regulated returns on assets," Sherlock says. The latest hit from the changed rural services regime will cost Telecom $56 million.
Stiffer competition is another problem.
"The company is focusing on transformation while managing pricing and margin problems in its other core businesses."
In the near term, he remains concerned about the elevated risks associated with the regulatory break-up of Telecom, the weaker New Zealand competition, the intense competition in its home market and the viability of its Australian operations.
"While the margin uplift in the first-half of 2010 was encouraging, we are yet to see a turnaround to Telecom's declining revenues."
Despite Telecom's high dividend yield, there are more attractive alternatives within the sector, Sherlock says.
His 12-month target price is A$1.38 (NZ$1.80) compared with yesterday's closing price of NZ$2.18.
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