Bad, but no disaster
By MALCOLM MAIDEN
Wednesday 13 June 2001
It could have been worse, much worse.
After yesterday's 9.4 per cent dive, Telstra shares are 33 per cent below their peak of 18 months ago, and almost 18 per cent under the price investors paid in last year's second privatisation share sale.
But on the Amsterdam stock exchange, the former Dutch telephone monopoly KPN has lost 90 per cent of its value in a year, and the company's survival is in doubt.
Shares in Telstra's British equivalent, British Telecommunications, fell 18 per cent in one day last year on news of a profit downturn that was only half as bad as the one Ziggy Switkowski unveiled yesterday. BT's shares are 70 per cent below their late-1999 high.
All three groups had the same task - to defend their turf after deregulation and to extend their reach into new markets, including mobile telephony and data services. The task entailed a fine balance between price cuts and profit margins. Telstra has done a better job.
Unlike BT, which surrendered market leadership in new businesses to interlopers such as Vodafone, Telstra kept or built leadership in its key markets.
Telstra's balance sheet is also much stronger than BT, KPN and other former northern hemisphere telco monopolies including Deutsche Telekom. Net debt now equates roughly to annual operating earnings. At KPN, net debt is more than four times higher than operating profit, and at BT the ratio is more than three times.
Telstra paid some fancy prices during the boom, and flirted with one mega-transaction, the takeover of the Packer family's Publishing Broadcasting. But the group's partly privatised balance sheet simply could not support the towering deals that have undone some of the big offshore players, notably a feverish boom-time bidding war for new European broadband radio spectrum, which ultimately cost the industry $US90 billion ($A173 billion), with as much again needed to build the new networks.
By the time the Federal Government auctioned the space last March, the boom was a fast-fading memory and Telstra got what it needed for $302 million.
But yesterday's announcement does show that Telstra has very little margin for error. Switkowski listed various reasons for the $400 million revenue shortfall, but the key element was a slump in demand. He says he is confident revenue growth rates will rebound next year.
But if this is a longer-term slowdown tied up with the end of the mobile-phone boom, Telstra shares are still expensive at yesterday's closing quote, which leaves them still priced for solid growth, at 19.43 times earnings.
The Maiden family owns Telstra shares.
This story was found at: theage.com.au |
