TLS 0.58% $3.43 telstra corporation limited.

sell call

  1. 934 Posts.
    Telstra 'sell' call
    By Geoff Elliott and Michael Sainsbury
    TELSTRA shares could come under pressure today after a leading US investment bank changed its view and slapped a "sell" recommendation on Australia's biggest company.

    In a report sent to clients at the weekend, Morgan Stanley warns Telstra will probably disappoint investors when it announces its full-year profit on August 28.

    Morgan Stanley telco analyst Andrew Hines downgrades his Telstra recommendation – from "hold" to "sell" – at a time when many broking houses, such as UBS and JB Were, say Telstra's shares are likely to keep rising.

    He says a catalyst for further selling pressure on Telstra shares will be the release of the company's results when analysts expect Telstra to report slightly weaker net profit, down 1 to 2 per cent to about $3.8 billion to $3.9 billion, and little, if any, growth in sales.

    "This should refocus the market's attention on the weak operating environment and subdued growth outlook," Mr Hines says in the report. "We believe the stock is at risk of continued earnings downgrades" in the 2004 and 2005 financial years.

    The downgrade comes as the annual profit reporting season gets under way this week. It is shaping up to be a volatile period amid speculation there will be some big earnings shocks for the market.

    Mr Hines has a track record of picking turnarounds in Telstra's share price, successfully charting its performance last year.

    Telstra has bounced off lows of $3.92 in March and the rally to Friday's $4.83 has brought some relief for more than 1.5 million shareholders who bought Telstra shares at $7.40 in the Howard Government's T2 offer in 1999.

    But according to Morgan Stanley, that rally will fizzle out. Mr Hines puts a $4.43 price target on Telstra.

    He says the reason for the rise in Telstra's shares lately has less to do with Telstra and more to do with big US investment managers parking their money in high-yielding stocks as the US bond market rallied and market interest rates fell.

    But that is now unwinding as the US bond market plummets and market interest rates start to rise again.

    Mr Hines says Telstra shares are also expensive compared with its global peer group and the rest of the Australian stock market.

    He says the market is also underestimating the margin pressure on Telstra, noting Telstra's "operational environment remains very challenging".

    "In particular, the Australian mobile sector has become even more competitive in recent months following the launch of Hutchison's 3G net work and Telstra's decision to reintroduce handset subsidies," he says.

    According to Bloomberg, of 15 analysts covering Telstra, 13 are telling clients either to hang on to Telstra shares or buy more.

    Rival US investment bank Smith Barney, like Morgan Stanley, is bearish and has an "underperform" recommendation on Telstra's shares, according to Bloomberg.

    "The major divergence between our forecasts and the consensus view is in our analysis of Telstra's long-term operating margins," Mr Hines writes.

    "The consensus view is Telstra will be able to keep margins relatively steady, whereas we forecast an erosion in margins as market share continues to be lost."

    He suggests investors could switch to SingTel or Telecom Corp of New Zealand.

watchlist Created with Sketch. Add TLS (ASX) to my watchlist
(20min delay)
Mkt cap ! $40.79B
Open High Low Value Volume
$3.46 $3.47 $3.42 $42.42M 12.34M

Buyers (Bids)

No. Vol. Price($)
6 603244 $3.43

Sellers (Offers)

Price($) Vol. No.
$3.44 13500 1
View Market Depth
Last trade - 16.10pm 17/05/2021 (20 minute delay) ?
-0.020 ( 0.70 %)
Open High Low Volume
$3.46 $3.47 $3.42 5873990
Last updated 15.59pm 17/05/2021 (live) ?
TLS (ASX) Chart
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.