Telecom shares 'viciously sold'

Telecom investors appeared frightened off yesterday by the release of a complicated set of annual accounts, dumping the stock and forcing the share price down 9% soon after the June year profit was filed.

The shares closed last night at $2.52, down 23.5c or 8.53%. There were 32 million shares traded during the day, compared with 21 million last Friday.

The period under review included five months of trading before the demerger of Chorus, which became effective on December 1; and seven months of trading after the demerger.

The result also included a large non-cash accounting adjustment made in the first half of the financial year which related to the demerger of Chorus.

Craigs Investment Partners broker Peter McIntyre said the shares had been "viciously sold off" by investors.

"The outlook was more muted than the market had expected. In this economy, the market is looking for guidance and if you don't give it or it is disappointing, investors take the money off the table.

"It is tricky getting a feel for Telecom. It will take two or three days going through these numbers to get a clear understanding of the business."

The dividend was likely to help the share price recover over the next few weeks, he said.

The adjusted accounts showed Telecom reporting earnings before interest, tax, depreciation and amortisation of $1.05 billion for the year ended June, up 4.8%.

Net earnings, which were adjusted for continuing and discontinued earnings, net of tax, came in at $422 million.

A final dividend of 11 cents per share will be paid, with 75% imputation, taking the total dividend to 20 cps.

Acting chief executive Chris Quin described the result as satisfactory.

"Telecom's operational performance reflects an increasingly competitive market and is in line with guidance. Following the creation of a new industry model post-demerger, we expect strong competition to continue, with increasing consolidation."

Telecom would focus on winning in key markets to drive long-term value and compete aggressively in fixed line to maintain broadband market share, he said.

However, Mr McIntyre said the broadband figures for the June year were disappointing.

"Telecom said it would aggressively target broadband customers but that hasn't come to fruition as they added only 2000 subscribers in the second half - lower than market growth and market share going down to 50%."

Falls in access lines also accelerated but the focus was on broadband market share, he said.

Performance in the mobile division was flat in terms of connections and usage revenue. Only handset revenue grew the operating profit.

Included in the financial outlook, operating earnings for 2013 would be a flat to low single-digit percentage fall, Mr Quin said, and the company would be investing to hold broadband market share. Capital expenditure of about $460 million would include spending on spectrum and an allowance for data centre spending.

Mr McIntyre said the short-term investment associated with holding broadband market share probably contributed to the caution on the operating earnings guidance. Craigs viewed the short-term investment as important to addressing the longer-term value erosion associated with ongoing market share falls.

"The outlook is cautious and remains subject to a strategy review by the incoming chief executive Simon Moutter." At a post-profit announcement conference, Mr Moutter said he expected to add his "flavour" to Telecom's business strategy early next year after spending his first two weeks in the top job listening to customers and staff as he started to engage with investors.

He was working on an "ambitious strategic plan for the company" to build on its position in a post-Chorus environment as more customers switched to better technologies. As an early initiative, he had pushed making Telecom compete more aggressively in broadband to prevent customers leaving "simply on price".

- dene.mackenzie@odt.co.nz