Looks like the only way is up.
I believe that the stock was undervalued at it's IPO although not sure if current price level is justifiable.
My opinion on it's undervaluation.
- It is the incumbent PTO of Australia.
Telstra has a dominant market position and will continue to have one for at least 5 years or so. Australians are very patriotic if not xenophobic and will continue to buy their telcom services from the only "truly Australian" company. There was and still remains today much resistance to the number 2 operator Optus based on the fact that it is majority owned by foreign investors. There was great fear during the build up to the IPO that Telstra would lose great chunks of market share as the government espouses the virtues of a truly competitive market place, however one look at the US will show that even 14 years after the break-up of Ma Bell, AT&T continues to be the dominant phone company. Statistics from other markets such as the UK and Europe favour the incumbent operator's enduring success for at least a decade.
- The floatation of the company was the people's float
The Australian government, in all it's marketing wisdom, gave preferential share allotment to the ordinary Australian thereby ensuring that as the price increased so did the satisfaction of the voter and the likelyhood that the government would be re-elected. The result of this was two-fold 1) Telstra is one of the most widely held public companies in Australia providing price stability and keeping share turnover minimal, and 2) every Australian phone subscriber who now owns Telstra shares is even more loyal to the company. Xenophobic ignorance + ownership = Telstra will remain the dominant player in the market for a while longer.
- Telstra is the most profitable company in Australia
Although Telstra is the most profitable company in Australia, there is still so much room for them to reduce costs. Telstra will continue it's path to ever increasing efficiency, the only factor is that it is still majority owned by the government and still dictates how it should provide service, especially to the rural and pension stricken. However, Telstra has shown great marketing versatility and continues to roll-out new services to ensure that revenue will continue to grow strongly.
In short, long term this is a fantastic stock, especially for those like me who were able to get some at the IPO price. Short term I believe there will be some sell off by the Australian public in the run up to the Christmas season, especially as the Australains are notorious consumers during this period. This will mean some levelling if not drop in price whereafter January will see another upsurge. Long term, the company will see an upgrade in valuation as the remaining two-thirds are sold off. Right now, price is rising too fast in my mind but there is little to argue against it at the moment - this company will be around for a while and it's gonna make some big money.
Tony A. Matthews |
