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Wednesday 21st September 2011

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Telecom (NZX: TEL ) has been upgraded to hold from sell by Royal Bank of Scotland (RBS) after further details have been released about the company's potential demerger. RBS says "rollout (of the new fiber network) and competition risk still remain however we now have greater clarity around the separation costs, which we had seen as a key risk."

RBS also increases TEL's target price to NZ$2.45 vs NZ$2.41, while post demerger TEL’s target price falls to NZ$1.63, however by that stage TEL investors will also be holding one Chorus share for every five Telecom shares they own.

RBS adds that it expects the next major event for the company to be the demerger in late November 2011, when Chorus and Telecom will start trading as separate stocks, however the separation is still subject to shareholder approval.

In the year ending 30 June 2011 TEL announced adjusted Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) of $1.8 billion, an increase of 2.1% on the previous financial year, and above previous guidance.

TEL reports that it is making further progress towards regulatory simplification, as Government and the industry prepare for an Ultra Fast Broadband (UFB) regulatory environment. TEL reports transition to a new operating structure is underway and it is preparing for demerger and UFB implementation. TEL anticipates demerging Chorus in the year ending 30 June 2012, and therefore all financial guidance has been withdrawn.

TEL shares today traded at NZ$2.58.

Contact IRG on 0800 437 8489
**A disclosure statement is available, on request and free of charge by calling 0800 437 8489.

Recommendation sourced from Dow Jones Newswires and IRESS.


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