Watch Telecom but bank on Advantage!

Monday 3rd September 2001

August has so far been living up to its promise as a more exciting month for our NZSE as the financial results season gets underway and company performance comes under its usual annual scrutiny. A whole raft of companies will be announcing their June-year results over the next few weeks but for me personally, I will especially be keeping a close eye on two stocks, Telecom and Advantage.

TELECOM has rebounded with a new lease of life in the last week but is expected to announce a reduced profit in the vicinity of $760-$800 million for the June year. For the record, TEL posted an $822 million after-tax profit for the year to March 2000 but has since changed its balance date to June 30. The expected fall in profit for the June 2000 year underlines the cost to the company of expansion into Australia (with returns on that investment some time off) and the greater competition TEL faces in New Zealand in particular sections of the market.

TEL's value has been slashed by $4.3 billion during the past four months - largely attributed to the fairly flat performance of the company as a whole, coupled with the trashing of telecommunications stocks worldwide. While the anticipated reduced company dividend can be expected to further alienate some investors, most will however be looking towards hearing some positive news which will encourage them to stay in, or buy into, the stock at its current levels.

In particular, news on the following will ensure a reinvigorated interest -

AAPT's expansion plans in Australia
The rumoured possible alliance with Japanese telecommunications giant NTT DoCoMo and Australia's No.2 telco, Cable & Wireless Optus
The future of TEL's mobile businesses and its Xtra network
The Southern Cross cable (of which TEL owns 50%) which will carry the bulk of future telecommunications between New Zealand, Australian and the United States.

But until I hear some positives from Theresa Gattung on 15 August however, my money will be on Advantage this week. ADV will be announcing its annual results for the June 2000 year on Wednesday 9 August and predictions are for a $6 million profit, compared to $4.87 million last year - an impressive 23% hike in net profit.

Although no announcement has yet emanated from ADV headquarters, the company is believed to have signed a significant e-commerce deal with casino operator Sky City who, in turn, recently bought a sizeable stake in sports betting business, Canbet. More is expected to be revealed on Wednesday.

It is also understood that ADV has recently been working quietly 'behind the scenes' with a view towards making acquisitions in Australia and a listing on the ASX. CEO Greg Cross has been making quite a few trips across the Tasman in recent months while David de Campo (Eric Watson's business minder in Australia) has also been spotted on a few occasions at ADV's headquarters in Auckland's Wilkins Street over the last few months.

That something is brewing goes without saying - reinforced by the surprise move by ADV to bring forward its annual results announcement (originally scheduled for release in September). Then there is the "locked door" setting for media and analysts attending the annual results presentation - to be conducted simultaneously in Auckland and Wellington. Obviously the tight security is to ensure no leakages beforehand and one does not need to be an Einstein to figure out that this occasion promises to be more than just your normal 'release of company financial results' tea party.

For investors, any indication of ADV's Sky City, Australian and ASX plans would be a real bonus as this would quickly translate into a swift rise for the ADV share price.

However, putting all that aside, my interest in ADV is actually more long term - especially with regard to its endeavours in the wireless technlogy arena. Until recently, wireless data capture has largely been a low priority for the ADV business but this is changing. ADV is currently in partnership with Symbol, a global leader in wireless and internet-based mobile data management systems and services. ADV says there is tremendous scope for it to develop applications, in combination with Symbol technologies, to provide wireless local area network (LAN) and wide area network (WAN) mobility solutions for a wide range of industries.

ADV also intends to apply its expertise in the arena of wireless application protocol (WAP), an important standard for giving wireless devices access to content over the internet. (WAP brings together both the internet and mobile industries - the two fastest growing sectors in the telecommunications industry)

With the above in mind, I was therefore especially interested in ADV's deputy chairman Nick Gordon's bidding for a 2G spectrum and one of the 2G pairs at the ongoing radio spectrum auction. Until last Friday, the enterprising Mr Gordon held some 2G spectrum - and also a 10MHz matching pair which he has since lost through higher bids being placed by other parties involved in the auction. Prior to last Friday, Nick Gordon had indicated that the 10MHz matching pair he had then held might be increased to 15MHz (the minimum required for mobile internet).

Nick Gordon is bidding under the banner of his company, Gordon Marketing...but then if we are to believe that Gordon Marketing is going to be the new force in wireless internet technology, then we'd probably also believe in the tooth fairy! It would be extremely surprising to me therefore if ADV is not involved at all in Nick Gordon's endeavours. If ADV is, it is then conceivable to expect an alliance with a mega overseas-owned telecommunications giant (possibly currently only having a limited presence in New Zealand) who will then be the major infrastructure supply partner in the venture.

While I don't expect ADV, at its press conference this Wednesday, to reveal anything about its future plans in the mobile wireless internet field (especially not while the radio spectrum auction is still continuing), I do however expect Nick Gordon to bounce back with a counter bid. The size of future bids will perhaps see this tale unfold further.....so watch this space...and hang on to your ADV shares!

Lastly, I can't conclude without talking about the venerable Alan Greenspan who will make his next appearance on 22 August to let Wall Street (and the entire world) know what's in store for them. The bad news is that American analysts still say there is no surety that Greenspan will not raise interest rates again. The good news is that the Americans are entering into a presidential campaign and the Feds traditionally prefer to stay out of the spotlight during the height of the campaign (the period between Labor Day and Election Day). This means that for all practical purposes, the Feds will be on hold after 22 August until 15 November - the first Open Market Committee meeting after Election Day. For that, we must be grateful. There is a God after all! Happy investing.

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