Telstra to benefit from defensive status stable earnings outlook: JP Morgan
2001-03-09
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Telstra Corp is seen outperforming the telecoms sector due
to its position as a defensive stock and its relatively stable earnings outlook
following its first half to December results, analysts said.
At 10:50 am, Telstra was down 0.011 aud at 6.72.
The S&P/ASX 200 was down 4.5 points at 3,357.5.
Telstra released its first half results yesterday, announcing a net profit
of 2.623 bln aud compared with 2.093 bln a year earlier.
JP Morgan Ord Minnett analyst David Wilson said the pre-abnormal EBIT grew
by 11 pct and EBITDA grew by 9 pct, on the back of a fractionally
lower-than-expected 5 pct increase in sales.
"The result will comfort a market that had become uneasy following the
disappointing year to June 2000 result and scepticism around the Pacific
Century CyberWorks Ltd transaction," Wilson said.
"It supports our investment thesis that Telstra remains a core, defensive
stock in a market and region short of such plays in a period of earnings
uncertainty," he said.
His house retains a year to June 2001 forecast for normalised EPS of 0.33
aud and a 6.777 bln net profit forecast including one-off items and the severe
distortions of the PCCW transaction.
"We believe Telstra stock can outperform in a period of telco equity
trauma. It is not faced with business case risk as with most start-up fixed and
mobile operators; with severe funding issues."
He said the stock price is unlikely to be fundamentally shifted by the
anticipation of spin-offs, such as Pacific Access or Yellow Pages, further
Asian expansion and Asian spin-offs.
Merrill Lynch analyst Parick Russel said he has raised his year to June
2001 net profit forecast, excluding non-recurring items, by 17.3 pct to 4.555
bln aud largely due to lower depreciation.
However he reduced his year to June 2002 forecast by 2.5 pct to 3.893 bln
due to expectations average wireless revenue per user will fall.
In the "short-term, we believe the stock is likely to remain rangebound
between 6.00 and 7.30 aud. In our view we need to see greater visibility of
medium-term earnings growth before the stock is materially re-rated up," Russel
said.
Merrill Lynch has a short-term "neutral" and long-term "buy"
recommendation, based on the potential for pricing power to improve from
industry consolidation, balance sheet strength and the ability to leverage
value accretive acquisitions.
ABN-Amro Equities Australia said the negative issues of the company's
results are the lower-than-forecast dividend and the weakness in operating
cashflow, while the positives are the reduction in capital expenditure,
expansion in EBITDA margin to above 50 pct, and continued strong growth in data
revenues.
ABN-Amro maintains a "buy" recommendation, and sees Telstra as "the safe
haven in an underperforming sector."
"There may be more upside in the price as overseas players digest the
result, however near term gains will be harder to pick (up) from these levels, "
the brokerage said.
UBS Warburg analyst Sakthi Siva said her house has been suggesting clients
consider Telstra overweight as the share price is not demanding, and "there are
signs of peaking in Australian telco companies' capital expenditure".
Siva said Telstra also benefits from slower-than-average earnings
downgrades.
plk/rf
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