TLS 0.52% $3.86 telstra corporation limited.

WHAT WILL TOMORROW'S Q3 RESULTS BRING?

  1. 4,941 Posts.
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    Ahead of tomorrow's Q3 market update, the selling pressure appears to be right on for Telstra, down 6c in trading today, with a number of large sized sell orders in the pipeline @$5.04, albeit up against a U bidder @$5.03.

    We should all know, however, by 10.00am tomorrow with Telstra expected to report on its Q3 results ahead of the market opening, tomorrow.

    Most analysts are anticipating a soft result for tomorrow, following on from the H1 results, and the guidance offered to the market at the time of management speaking to the H1 results in early March.


    MARKET GUIDANCE ISSUES:

    Leaving aside regulatory issues, the competitive landscape, T3, and FoxTel, of telling importance to tomorrow's results will be the following:

    1)
    ARPU growth, particularly in light of the late 2001 pricing increases in flagfall rates, and in SMS call charges. Of interest here will be the conversion rate into call minutes (ie: a measure of how much airtime is actually being generated).

    2)
    Overall market growth, particularly in terms of new subscriber connections to both the GSM and CDMA networks. With Vodafone's Q1 (Q4 for VOD) subscriber numbers recently out and showing a flatline result despite having the benefit of the TEL MVNO subscriber carriage arrangements, it will be interesting to see to what extent Telstra took customers away from the competition (ie: Vodafone), or lost them to the competition (ie: Optus). Anything less than 175k in net subscriber additions during Q3 is likely to be viewed negatively by the market.

    3)
    Data revenue results will also be an important indicator to both Telstra and the myriad of smaller data-linked players out there in the market place, all of whom appear to be competing quite aggressively (ie: discounting heavily) in order to either attract business to their data networks, or to win over business from actual /potential Telstra customers. Anything less than a flatline growth rate in data revenues, therefore, is likely to be viewed negatively by the market.

    4)
    Another factor that may well weigh on the market's collective mind tomorrow will be the current condition of the local loop. In particular, if management reports tomorrow flat to negative numbers in this area, the market is likely to react poorly to this.

    5)
    Another factor that may influence the market is the extent to which Telstra may be reconsidering the possible re-introduction of handset subsidies. These were permanently removed late last year although Optus has retained its subsidies intact. In recent times, however, Telstra management have given some indications to this being reconsidered as an issue, particularly in the light of current churn /growth rates. If subsidies are re-instated, the market will re-act to this quite negatively.

    6)
    CAPEX guidance will be another area of interest, particularly if their is any suggestion of Telstra's current CAPEX reductions eating into its core network operations. In the area of CAPEX commitments, some CAPEX spending is discretionary, and some of it is future focused and, therefore, opportunistic in nature. The vast bulk of CAPEX, however, is necessary in order to keep network operations at an economically efficient and operationally viable state of performance (ie: growth, care and maintenance, sustainable replacement, etc).

    7)
    Post Q3 guidance (ie: April trading) will also be very important (ie: is the market stabilising, deteriorating, or is it starting to improve).


    OTHER AREAS OF CONCERN:

    Elsewhere, issues of concern that may, or may not, be touched upon tomorrow, whether by management, or by the market /commentators, will be such matters as:
    a)
    T3;
    b)
    the FoxTel ACCC inquiry;
    c)
    the virtual accounting separation plan (ie: between Wholesale and Retail);
    d)
    Telstra's overall reaction to, and ongoing relations with, the Government, including Sentaor Alston and his office; and
    e)
    the PCCW experiment, particularly in light of the overnight announcements that Hutchison Whampoa has moved to taking control of 100% of Hutchison Global Crossing (previously, 50%), Hutchison GlobalCenter (previously, 50%), and ESD Services (previously, 57.5%), from Asia Global Crossing. In doing so, Hutchison Whampoa is rapidly moving to a position of dominance in the data access market into Hong Kong, otherwise an area where PCCW was (until, yesterday, quite strong in). In addition to this, Hutchison Whampoa and Singapore's Telemedia International are stepping up their global campaign to acquire Global Crossing, Asia Global crossing's parent.


    TELSTRA PRICE TARGET:

    A few days ago (28/4/02), in response to an HC query regarding how low Telstra would go, I observed that Telstra's share price would dip under $5.00 and would stabilise around $4.80 - $4.90 by month's end.

    In all likelihood, Telstra will be sold off tomorrow and could dip to the mid $4.60 mark before recovering to between $4.80 to $4.90 during the course of May. I do not, however, expect to see a sustained closing above $5.00 for May.
 
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