Telecom, Contact results anticipated

Suzanne Kinnaird
Suzanne Kinnaird
Two influential financial results are due out soon, with interest in Telecom high as it is expected to be the last before the company splits into two.

Contact Energy is trading below $5 a share for the first time since March 2004 after experiencing a tough year.

Forsyth Barr broker Peter Young says the positives from a financial perspective will be few and far between.

Telecom's result is likely to be of mainly historic interest, with market focus on the contract with the Government on ultra-fast broadband and the separation process.

Forsyth Barr broker Suzanne Kinnaird said yesterday she expected the separation scheme documents to be released over the next two to four weeks.

The earnings before interest and tax (ebit) forecast was near consensus at $700 million for the year to June and second-half revenue was expected to be near the previous corresponding period.

Broadband and IT services growth along with slight growth in mobile revenue should approximately offset fixed voice, data and interconnection falls, she said.

Vodafone lost 26,000 customers in the June quarter, of which 27,000 were prepaid.

They were offset by a gain of 1000 in postpaid.

"Over the last few quarters, Vodafone has generally lost more prepaid customers to 2degrees than Telecom, but Telecom has failed to grow its postpaid base. This would suggest Telecom's customer base may have been near flat in postpaid and prepaid."

Forsyth Barr valued a separated Telecom at $2.73 a share.

Chorus, the separated company, should become a stable regulated monopoly, although competition in the retail business would probably intensify, Ms Kinnaird said. "We expect the release of the separation scheme documents to be a positive catalyst and our recommendation is accumulate."

Mr Young said that while Contact would meet its original guidance, this was the third year where earnings had disappointed. Most of the low earnings were attributable to low wholesale electricity prices.

with increased retail competition and the delay in commissioning the two gas-related projects also having an effect.

The February earthquake in Christchurch had a more severe impact on Contact than the one in September last year, he said.

Contact's lpg reticulation network was disrupted and the earthquake had been a significant factor in low electricity use during the second half of the year.

Competition for retail customers remained intense, with Contact losing 17,000 retail electricity customers and 3500 retail gas customers.

The second-half dividend was expected to remain unchanged at 14c per share, taking the full-year dividend to 25cps. There was a small risk that Contact would lower the dividend following the successful capital raising, Mr Young said.

"While Contact is good long-term value, our accumulate recommendation also takes into account the difficult retail electricity market, the impending listing of electricity state-owned enterprises and the fact that wholesale electricity prices remained low - with the exception being last week," he said.

 

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