Telstra's big call for investors
powerize.com
Sunday Star-Times
REACH for the antacids. Heartburn is again causing considerable discomfort as another share instalment receipt payment looms on the horizon.
And once again, first instalment receipts are well under water just as nervous investors must cough up with more money - or get out of the kitchen and cop a loss in the process.
This time it is the turn of Telstra 2 instalment receipts, held by around 20,000 New Zealand investors. Kiwi Telstra 2 receipt holders paid $5.91 for their first instalment just a year ago, but last week they were trading around $4.30, nearly 30% below what they originally paid.
This month the Australian government will remind them they must come up with another $A3.05 by November 2 for each instalment held to convert it into a Telstra head share.
Analysts are doubtful the receipt price will recover to $5.91 by October 20, when they stop trading. In fact, if previous experience is any guide, the receipt price will trend down in the month before trading stops as nervous nellies quit.
So, is it worth stumping up more money when the Telstra 2 receipts are now so far behind - and look likely to remain so?
Three quarters of Telstra 2 receipt holders also hold Telstra head shares and will have gone through the whole business of paying a second instalment on the first tranche Telstra selldown.
What does that experience tell them about the dilemma they now face? Probably not a lot.
It is widely recognised that the pricing of first instalment receipts in the first tranche sale was too generous to investors. New Zealand investors paid $2.23 for their first instalment in that tranche sale in November 1997 and saw their receipts double in price within just 72 days.
When trading in Telstra 1 instalment receipts stopped one year later, they were priced at $5.75, up 157%. (Compare that with Telstra 2 instalment receipts, now nearly 30% behind.) In November 1998, investors paid a second instalment on Telstra 1 of $1.60, making a total payment of $3.85. By November 1999 that investment had reached the giddy heights of $11.35 before sinking back on its laurels.
Last week Telstra head shares were trading at around $8.35, well down from their peak, but still comfortably ahead of the $3.85 paid by original shareholders.
When the second tranche of Telstra shares were being readied for sale a year ago, investors were warned not to expect the giddy gains made by Telstra 1.
The share was then seen as fully priced compared to other international telcos, and to justify a toppish price-earnings ratio of around 30 at that time, Telstra would have to increase earnings substantially.
Two weeks ago Telstra announced a net profit of $A3.68 billion, an Australian record. But there was a feeling among analysts that that was as good as it was going to get. Traditional areas of local calls and STD and long distance were being heavily impacted by competition and lower prices, said chairman Bob Mansfield.
On top of that, new areas of growth were taking time to become as substantial as the company would like. There has been a lot of nervousness in Australia on Telstra's deal with Richard Li's Pacific Century Cyber-Works where it is assumed further growth will come.
All these worries saw Telstra shares sink 10% in two days of selling, with the Telstra 2 receipts carried deep underwater. But analysts across the Tasman have been calling for calm. Most expect Telstra shares to eventually bounce back, which is probably reason enough to clench your teeth on payment day, November 2, and wait.
Investors in Sky City on this side of the Tasman will know the feeling well . . . the anguish as well as the relief.
They paid $4 in April 1999 for a first instalment receipt in the Auckland-based casino operator when cornerstone shareholder Brierley Investments sold out.
The instalment price rose to $4.60 before falling to a nerve- tingling $2.30 at the time receipt trading stopped before the payment of the second instalment of $3.55. But since the payment of the second instalment, and some good results from Sky City - its latest profit is up 30% on strong revenue growth in all gaming operations - the share last week was trading above the $7.55 total paid by initial receipt holders, and the future looks bright for the company and shareholders.
Not so lucky are holders of Capital Properties shares, where investors paid a first instalment of 50c in June 1999 and another 50c a year later. Last week the share was trading at 89c, still below the $1 coughed up by many mum and dad investors in the float of the former Government Property Services. The only consolation is that most investors received a miserly 500 instalment receipts in the float. .
Capital Properties' woes have to do with the property market as a whole, as do Telstra's with a global unease affecting all telco shares at the moment.
But while Australian analysts are circumspect about Telstra's share price in the short term, they still advise investors to hang in there for the longer term.
And that means another antacid tablet, along with a hand in the back pocket for a second instalment payment, if you can afford it.
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By: SHEERAN, Garry |
