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Chorus

By Dan Stratful (AFA)

Tuesday 28th August 2012

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Chorus (NZX: CNU ) yesterday reported its inaugural profit result for the seven months to 30 June 2012 (FY12), and it was ahead of market expectations. However more importantly to its income orientated shareholders, it gave confirmation of its FY13 dividend forecast.

CNU reported EBITDA of $399 million for the FY12 as fixed line connections remained static at 1,776,000 while broadband connections grew steadily to total 1,040,000. EBIT was $210 million, and net profit after tax (NPAT) for the period was $102 million, with adjusted NPAT of $94 million.

CNU has approved a FY12 final dividend of 14.6 cents per share (fully imputed) to be paid on 5 October 2012 and investors need to own the shares by 18 September 2012 to get the dividend. CNU also anticipates a FY13 full year dividend of 25.5 cents per share (fully imputed) subject to no material or adverse changes in circumstances or operating outlook.

CNU appeals as an income stock however investors should be aware that if at any time CNU's credit rating falls below investment grade while it's Crown Fibre Holdings (CFH) Debt Securities remain outstanding, CNU is prohibited from paying dividends.

Another risk to the shares is regulatory risk as CNU's Ultra Fast Broadband (UFB) services and pricing are set by the UFB contract until the end of 2019. Most of CNU's non-UFB services are regulated by the Commerce Commission who is currently reviewing prices for CNU's Unbundled Copper Local Loop (UCLL) and Unbundled Bitstream Access (UBA) services. The review is expected to be completed in November 2012.

Utility shares often provide a good source of income and investors pocketing all 3 gross dividend payments due in October 2012, April 2013 and October 2013 are looking at an above average 16.7% gross income stream over a 13 month period.

This type of yield is likely to underpin the shares in the near term.

About Chorus:
CNU is New Zealand's largest telecommunications utility company providing voice and fixed broadband services to 90% of the market, boasting a near monopoly position. Its assets include over 130,000 kilometres of copper cables, 27,600 kilometres of fibre cables, 602 telephone exchanges and 11,430 roadside cabinets that connect users to the global telecommunications fixed line network. CNU will play a leading role with Government owned Crown Fibre Holdings Limited (CFH), who will invest $929 million in CNU to fund construction of the Government's ultra-fast broadband (UFB) initiative worth $1.35 billion. The UFB network aims to be accessible to 75% of New Zealanders by the end of 2019, whilst maintaining its existing copper network. CNU began trading on the NZX on 23 November 2011 after it was demerged from Telecom at a ratio of one Chorus share for every five Telecom shares held. Telecom remains CNU's largest customer providing around 84% of CNU's revenue.

Status: YIELD BUY

CNU's shares today traded at $3.33

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