Telecom profit rise tipped; watch for progress update

Suzanne Kinnaird.
Suzanne Kinnaird.
Telecom is expected to report an increased underlying profit for the six months ended December, driven by significant cost reduction work, Forsyth Barr broker Suzanne Kinnaird said.

Telecom is due to report on Friday and Ms Kinnaird said she was looking for an update on progress the company was making.

''Though the focus has been on the head-count reduction programme Telecom launched in 2013, this is just one set of costs it faces. In particular, we are looking for cost-out in external suppliers and further mobile cost-of-sales savings,'' she said.

While the short-term focus was costs and falls in fixed-line revenue, to succeed longer term Telecom required an upgrade of its underlying systems and capabilities, she said.

Although the programme was for two or three years, capability improvements should be expected along the way.

Understanding what, if any, improvements would be delivered in the next six months would provide an insight into Telecom's progress, Ms Kinnaird said.

With the sale of AAPT in Australia, management could focus purely on the New Zealand business.

''While longer-term issues remain, its current dividend policy can easily be maintained in the medium term.''

Forsyth Barr is forecasting operating earnings of $519 million for the six months ended December, up 2.6% on the previous corresponding period. Revenue was expected to fall 5.1% to $2 billion. Underlying profit was forecast at $173 million, up 6.2%.

 


Key issues to watch

• Risk of further fixed revenue decline from calling, broadband and data

• Updates on continued cost reduction activities

• Progress on Telecom's re-engineering project


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