Telecom shares (NZX: TEL), which closed at an all-time low of $1.99 on Friday, continued their slide after this morning’s statement to the market that the company is considering structural separation.
In late morning trading, its shares were changing hands at $1.96.
For one analyst, the company has now fallen far enough (it's 52-week high was $2.88) to come onto some investor's "buy" radar.
"My view is that there is more upside than downside at 1.96", Forsyth Barr's Guy Hallwright told NBR after this morning's announcement. [The company's shares had slipped further to $1.93 by mid afternoon.]
However, the analyst also qualified his comment: "There is still a huge amount of uncertainty over what you will end up with as a shareholder, so [it's] not for the risk-averse.
Accordingly, the analyst is keeping his "hold" rating on the company.
It won't happen overnight
"The structural separation announcement is welcome", Telecommunications Users Association chief executive Ernie Newman told NBR today. "It would have been more so if it had been a year earlier, but nonetheless it's welcome."
However, don't expect things to change overnight, the Tuanz boss cautioned.
"I think this will take time to play out. The devil is definitely in the detail and its crucial that it be got right. But it does have the potential to be a win-win-win for NZ, the industry, and for Telecom."
Better positioned for Crown fibre
If Telecom does spin off its network infrastructure division, Chorus, it would be better placed to participate in the government’s $1.5 billion ultrafast broadband (UFB) initiative.
"I think its always been an option but seems to have only become a serious option as the Crown Fibre Holdings tender process has progressed," said Mr Hallwright.
Although non-compliant bids have been submitted from Telecom and others, the letter of the tender prevents a company with both retail and wholesale interests from owning a majority stake in a Crown fibre entity.
However, there are many questions around a separation of Telecom Retail from Chorus, including how much debt would be shoveled onto a spun-off networking division, and what price the rump of the company would have to pay to access the fibre cable and copper lines it used to own.
Mon, 24 May 2010