Australia's Telstra 1H Expected Marginally Stronger
March 1, 2002
By GRAHAM MORGAN
Of DOW JONES NEWSWIRES
MERBOURNE -- Analysts are bracing themselves for a complex set of half year accounts from Telstra Corp. (TLS), Australia's largest telecommunications company, which they expect to show marginal 3% underlying growth in core businesses.
Direct comparisons between the latest and previous figures will be difficult because joint ventures with Hong Kong's Pacific Century Cyberworks Ltd. (PCW) will be included for the first time and stacked up against large one-off items booked the previous year.
Government-controlled Telstra is expected to report a net profit of A$2.09 billion for the six months ended Dec. 31, down from A$2.62 billion, according to a Dow Jones Newswires survey of seven analysts. Revenue is forecast at A$10.32 billion, down from A$11.32 billion
But these figures obscure the true picture, according to the analysts, who have "normalized" Telstra's accounts by stripping out the Asian joint ventures, one-off items and Foxtel, its domestic pay-television vehicle with News Corp. (NWS) and Publishing & Broadcasting Ltd. (A.PUB).
Their "normalized" accounts on average show a net profit of A$2.04 billion, against A$1.98 billion in the previous corresponding half year, indicating growth around the 3% mark.
The range of estimates for bottom line profits and normalized profits are both narrow, because analysts are still mindful of Chief Executive Ziggy Switkowski's somber comments on growth last October.
Switkowski unveiled figures showing revenue from Telstra's core domestic operations in the first quarter ended Sept. 30 grew 1.8% to A$4.62 billion, with underlying growth of just 0.9%.
And at that time, he foreshadowed little growth in the next two quarters, which pushed any prospect of noticeable revenue growth out beyond March, 2002.
The focus next Wednesday, when Switkowski is scheduled to unveil the first half accounts in Melbourne, will be on mobile and data growth, capital expenditure and any outlook statements.
The analysts expect mobile revenue to grow 12% to A$1.75 billion and data revenue to be flat at A$1.64 billion, or slightly lower if rising customer numbers fail to compensate for falling data fees.
Analysts Take Lead From Optus
The mobile and data revenue contributed A$3.2 billion to overall revenue of A$9.75 billion in the 2000-01 half year, after one-off items were stripped out.
The bulk of the remaining revenue came from basic network access and telephone calls - local, long distance and international - totaling A$4.06 billion.
The telecommunications team at ABN AMRO are toward the top end of estimates for mobile revenue but toward the bottom end of the range for data.
"Telstra is likely to reveal that it has actually increased market share over the period and grown revenue around 13.5%," ABN AMRO analysts said in regard to the mobile sector in a note to clients.
"Secondly, data revenue is going to show an emerging trend in the market - zero to negative growth," they said.
The litmus test was the latest 9-month accounts released early February by Telstra's main competitor Optus, a subsidiary of Singapore Telecommunications Ltd. (P.SGT).
Optus' mobile revenues rose 14% to A$1.79 billion and data business revenues fell 2% to A$1.19 billion for the 9-month period ended Dec. 30, 2001.
Otherwise, ABN AMRO analysts think Telstra has been successful in snaring mobile market share from Vodafone Australia, the local arm of Vodafone Group PLC (VOD), Australia's third-largest mobile phone company.
Vodafone, which has around 17% market share or about 2.1 million customers, ranks behind Telstra with just over 45% of the market and Optus with roughly one-third market share.
Telstra is expected to be a net beneficiary of mobile number portability introduced in Australia on Sept. 25, 2001.
Separately, analysts tip Telstra's capital expenditure will lie between A$3.6 billion and A$3.9 billion in 2001-02 fiscal year, down from A$4.2 billion in the previous year.
This suggests capital expenditure will be around A$1.85 billion in the first half of 2001-02, which will be partially offset by cost cuts.
PCCW Ventures Expected To Contribute A$740M
Telstra needs to make at least A$300 million worth of cost cuts this fiscal year to meet mandated price reductions to stay inside federal government price caps on its services, but four of the analysts surveyed think there could be up to an additional A$200 million in saving this year.
"We think things are fairly positive for Telstra on cost cuts, and lower handset subsidies should help as they did for Telefonica," noted Tim Smart, an analyst at Macquarie Equities.
However, analysts don't expect Switkowski to be forthcoming on Telstra's outlook in the current second half of the year to June 30, 2002, given economic uncertainty in global markets.
Australian construction companies have already reported signs of an upswing in the domestic building industry, and any hint from Telstra that this is flowing through to telecommunications would likely prompt a rally in its shares.
Telstra shares broke out of a A$4.90-A$5.10 trading range earlier this year to A$5.66, but have settled back toward the range ahead of the results announcement. They closed up 4 cents at A$5.20 Friday.
Telstra's 50%-50% Reach and 60%-40% Regional Wireless Co. joint ventures with Richard Li's PCCW are tipped to contribute combined revenues of A$740 million to Telstra's half year results, according to Tim Smeallie, an analyst at UBS Warburg.
In the previous accounts, total earnings before interest and tax was boosted by a A$725 million write-back of a superannuation, or pension, liability as well as A$386 million in proceeds from the sale of a part interest in Computershare Ltd. (A.CSH) plus A$57 million in proceeds from the sale of shares in Extant.
-By Graham Morgan, Dow Jones Newswires;
61-2-8235-2962; graham.morgan@dowjones.com
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Updated March 1, 2002 1:49 a.m. EST
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