Telstra's free fall tipped to continue
Date: 20/06/2001
By Jan Eakin
Concerns over the future earnings growth of Australia's leading telecommunications company, combined with a sharp decline in the global telecom sector overnight, dragged Telstra shares to a three-year low yesterday.
The telecom slumped 26c to $5.36 before closing at $5.45 - its lowest level since June 1998. More than 53 million shares changed hands, as domestic and offshore institutional investors continued to desert the stock.
Dealers said Telstra was the subject of persistent selling from the start of trading yesterday, with several sell orders from overseas institutions adding pressure to the beleaguered stock.
"More bad news for the telecom sector overseas, with big drops in Nortel and British Telecommunications, weighed heavily on Telstra from the start," one broker said.
"The sell orders were there before the market opened and the only ones doing the buying were retail investors."
ComSec, the online broking arm of Commonwealth Bank, was the biggest net buyer of the stock. "A lot of our clients seem to think Telstra is reasonably well valued at these levels and are buying for the longer term," ComSec managing director Mr Paul Rickard said.
Ms Lucinda Chan, private client adviser at Macquarie Equities, said: "Our clients are very keen on the stock at these levels. It's seen as a long-term growth opportunity and they're prepared to ride out the rough times."
Telecom analysts, reworking their earnings estimates since Telstra shocked the market with its warning that pre-tax earnings growth would be 5 per cent compared with previous forecasts of around 10 per cent, are not convinced of a sustained recovery in the foreseeable future.
"As we head towards $5 a share, the stock is obviously looking more reasonable," said one analyst who preferred not to be named. "But, on our numbers, the fall so far has only been a result of the actual earnings downgrade and a bit of the global sector downturn.
"The general reweighting that normally accompanies a stock that's issued more than one profit warning has yet to take place and we wouldn't be surprised to see further falls."
Analysts now forecast Telstra to earn between $3.6 billion and $4.2 billion in the year to June 30, down from previous estimates of up to $4.4 billion. For the 2002 year, net profit is forecast between $3.42 billion and $4.3 billion.
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