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TLS $3.48

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  1. Yak

    13,672 posts.
    McQ view on TLS:

    Telstra (TLS) $4.50

    Short term Underperform, long term Hold, risk factor
    Low/medium

    US telco giant, WorldCom, yesterday announced that it will
    restate its 2001 and first-quarter 2002 financial statements to
    reduce operating profit by a total of US$3.85bn and had
    terminated its Chief Financial Officer’s employment contract.
    There has been speculation that this would put WorldCom in
    breach of its debt covenants and force it into Chapter-11
    bankruptcy.
    In Australia, WorldCom has been an aggressive competitor in
    the Australian corporate data market. Corporate data, along
    with mobile, has been one of the primary sources of growth
    for Telstra (and other telco companies) over the past five
    years.
    However, WorldCom is not the only aggressive competitor in
    the market and its withdrawal would not materially affect the
    current structure.
    Our analysis suggests that there are a number of structural
    issues with the Australian corporate data market which lend it
    to ongoing price wars and “irrational pricing”. Indeed the
    conduct of players in the market appears to perpetuate rather
    than compensate for these structural shortcomings.
    Continuing pressure on corporate data revenues, potential for
    market share loss in mobile, and negative sentiment due to
    the WorldCom developments are likely to maintain downward
    pressure on the share price.
    However, in light of Telstra’s yield (now at 4.9% fully franked)
    and low market expectations, we will be closely monitoring
    any potential positive catalysts.

    We maintain our short term Underperform, long term Hold
    recommendations for Telstra.

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