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Chorus shares rally after vote of confidence from Milford, ACC ups stake

Friday 13th December 2013

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Shares in Chorus climbed 8 percent in early trading after Milford Asset Management yesterday said the regulatory uncertainty hanging over the network operator was fully priced in, and the investment arm of the Accident Compensation Corp lifted its holding in the telecommunications company.

The stock rose as high as $1.50, and recently traded at $1.48, up 11 cents from yesterday, having plunged by more than half their value over the past year as the Commerce Commission looked to force a sharper cut to its regulated prices for copper line access than it had previously anticipated.

The rally comes after Milford Asset Management portfolio manager Mark Warminger said the uncertainty having over Chorus was fully priced in and the liquidity of the stock caused by the sell-off from international investors gave buyers an opportunity to get a discount.

"These are the main attributes I look for in a deep value investment," he said in the note.

Milford isn't the only local fund manager attracted to the stock, with ACC buying another 500,000 shares at about $1.34 apiece on Dec. 11, lifting its holding in Chorus to almost 7.2 percent from 6.2 percent, according to a notice to the NZX.

The local backing for Chorus is in contrast to the Bank of New York Mellon quitting its substantial holding in the company last week by reducing its stake to 4.9 percent.

Chorus has warned its annual earnings before interest, tax, depreciation and amortisation may be cut by up to $148 million from a raft of price regulations to its copper network, about a quarter of its $654 million annual earnings in the 2013 financial year.

Communications Minister Amy Adams is expected to receive a written report from Ernst & Young Australia today on whether Chorus has the financial capacity to withstand the regulated price cuts.

EY's preliminary view, in a verbal briefing for Ministers last week, was that there's a risk Chorus can't meet its contractual obligations if the cuts go ahead without any further action.

The government lost its ability to legislate away the problem after its support partners declared they would not back re-writing the law, effectively limiting Adams' options.

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