Telecom shares surge on rural broadband win
Its opponents may be wailing, but investors are dancing in the aisles. One analyst sounds a more downbeat note.
Telecom shares jumped 2.3% in the immediate wake of news that the company, in partnership with joint bidder Vodafone, had won the government's $300 million rural broadband tender.
By the trading day's end, Telecom shares (NZX: TEL) were up 4.16% to $2.15.
The company's critics may be wailing, but shareholders seem enthusiastic about the decision.
Maybe too much so.
Forsyth Barr analyst Guy Hallwright noted this afternoon that the decision would have no impact on earnings or valuation.
Mr Hallwright maintained his "accumulate" rating on the company, which he values at $2.30 to $2.50 - assuming it wins contracts in the urban ultrafast broadband (UFB) roll-out.
A key point: the rural broadband intiative (RBI) will be largely funded by an industry on the telecommunications industry, with the government chipping in a relatively modest $48 million over the project's six-year span.
"Telecom and Vodafone will be the largest contributors to the $50 million annual levy which funds the RBI, and this proposal effectively returns their contributions to fund rural infrastructure capex. Although the levy should cover most of the cost of the rollout, there will be some additional capex required. This should be positive for both companies, although it is probably not significantly value additive for Telecom."
When the rural broadband intiative was first announced - as part of the process of phasing out the old "Kiwishare Levy" or Telecommunications Service Obligation - which saw all money from an annual industry rural coverage levy going directly to Telecom - the company warned shareholders that the change could leave a $56 million hole in its ebitda over the first three years of the new, contestable fund (which has now, of course, been contested in Telecom's favour).
Chris Keall
Wed, 20 Apr 2011
Wed, 20 Apr 2011
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Telecom shares surge on rural broadband win
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