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Telecom bounces around bourse

By Phil Boeyen, ShareChat Business News Editor

Friday 7th July 2000

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NZ cornerstone stock Telecom will be nursing a headache over the weekend following a dizzy ride on the market.

The stock hit a three-year low this week when it was traded down to $6.93 on Thursday before ending that day at $7.00.

It then rallied on Friday to close five percent higher at $7.35.

Despite the rally many analysts believe the ride has only just begun and they are expecting increasing volatility.

Patrick Russel from Merrill Lynch says the general downward trend in the price reflects what has been happening to telcos globally, and within New Zealand there are concerns over the money that has been - and has yet to be - spent on AAPT.

He says the company is essentially moving from an income-based stock to a growth stock, and over the next 12 to 18 months the volatile price will reflect that fact.

Add to this expectations of an earnings correction and with it a likely revision of Telecom's dividend.

Telecom's stated dividend policy is to distribute at least 70% of net earnings but in 1999 for example the dividend distribution represented almost 95% of net earnings before abnormals.

Mr Russel says this compares with other telcos who pay out between 50 and 60%.

He says that with the changing shape of the company the investor base is likely to be recycled.

Telecom's full year earnings are due to be announced on August 15.

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