Telecom earnings reduced

Telecom is expected to post slightly reduced earnings for the six months ended December, when it reports its first-half results tomorrow.

Forsyth Barr broker Peter Young was expecting operating earnings of $868 million for the half, down 0.5% on the previous corresponding period.

Group earnings before interest and tax (ebit) were expected to be down 4% to $348 million after slightly higher depreciation charges.

Telecom had dropped its quarterly reporting and would now do half and full-year reports, Mr Young said.

It was unlikely that Telecom would be in a position to make any additional comments regarding the Government's ultra-fast broadband project (UFB).

"We expect Crown Fibre Holdings to announce the final selected bidder or bidders for the remaining regions either later this month or March."

The Government announced this week that it was negotiating with Telecom and Vodafone to build its $285 million rural broadband network.

Vodafone added 21,000 customers in the December quarter, of which more than 7000 were prepaid, versus a loss of 44,000 prepaid customers in the September quarter.

Assuming continued 2degrees growth, that could suggest a steeper decline in Telecom's prepaid customer base in the December quarter, Mr Young said.

"Telecom's full-year operating profit will be affected by changes to the telecommunications service obligation and rural broadband levy.

Substantial cost reductions will be needed to maintain broadly flat earnings before interest, tax, depreciation and amortisation.

"Telecom's participation in the Government's UFB project is becoming more likely, avoiding worst-case competition scenarios."

A likely valuation, assuming UFB inclusion, was $2.30 to $2.50 a share.

Telecom last traded at $2.22.

 

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