Next Telstra sell-off sets nerves jangling 23rd June 2002

John Synnott - Sun Herald

Call centre sales worker Janice Reid has almost $280,000 of Telstra shares hanging on the line.
Two million Telstra shareholders got that familiar sinking feeling recently as their $7.40 shares briefly dipped below $4.50. They closed on Friday at $4.59.

Reid, who owns 60,000 Telstra shares, is philosophical.

"I'd be getting nervous but my broker still thinks they are a good long-term investment," she said.

"He advised me to buy more."

But work colleague Julie Bernhardt, who holds 800 shares, said there was no way she would buy any in the looming T3 sale of the Government's remaining 51 per cent of the company.

"There's not a hope in hell I would buy T3 I have been burnt once," Bernhardt said.

"The only way is that the full sale might help lift the share price. If I could get the money back I spent on them, I would sell tomorrow."

T2 shares cost $7.40 each. Based on Friday's close, every 100 shares has lost $281.


Another workmate, Julie Hook, also doubts she would be a customer in another Telstra float.

"We did it once, and then twice, but that is enough," Hook said. "We thought we would make a bit of a killing out of this. I am so disillusioned I have put them in the bottom drawer and will look in 20years."


Reid said her broker advised her to sell her T2 shares and then buy them back at the lower price. This loss can be used as a tax deduction against the capital gains.

"My broker is not right 100pc of the time but I started buying bank shares 10 years ago when ANZ was $5, now they are $20," she said.

"More than half of my portfolio is bank shares and they have made lots of money."

Her investing days began with a superannuation payout on the death of her husband 10 years ago.

She found a good stockbroker who guided her into building up a blue-chip share portfolio.

Borrowing money to buy shares accelerated the growth of her share portfolio. The tax due on her share dividends was cancelled by the tax deduction from the interest payments on the borrowings.

"Someone, sometime is going to get a very large tax bill when all the shares are sold," she said.

"Anybody could do what I have done but you would have to be game."

Financial adviser Peter Thornhill, of Motivated Money, said this was a time for patience, not panic selling.

Underlying earnings of the near monopoly telco are going to drive the share price in the long term.

"I am a Telstra shareholder and since it floated I have received 15pc of my original capital back as dividend," Thornhill said.

"It will pay back its original purchase price like Tabcorp, which went public in 1994 at $2.24 and has already paid $2.90 in dividends.

"The Commonwealth Bank went public in 1991 with shares at $5.40 and I have received $9.20 in dividends.

"But people have to get used to the point that share prices may not go anywhere for the next two years."

While analysts are wary of Telstra, they point out that at its current depressed price the dividend yield is approaching 5pc a better return than leaving money in a bank.

Growth at Telstra would only come from cost reductions, according to a leaked e-mail that was sent to staff by Telstra Retail managing director Ted Pretty.

The prospect of the Government selling the other 51pc of Telstra threatened to swamp the market and further dampen the share price, analysts said.

Stocktake
Telstra has hit the bottom, say Assirt Equities Research's senior analyst telecoms MaxWheeler, and UBS Warburg analyst PaulRichardson.

Why are the T2 shares that floated at $7.40 now at $4.59?
Wheeler: Because of concerns about Telstra's future earnings growth profile, regulatory changes and very negative global sentiment towards telecommunication stocks.
Richardson: The major factor has been the implosion of the global tech bubble because of low growth expectations.

Would selling the rest of Telstra in a T3float help or hinder the price?
Wheeler: Neutral. Some form of Senate-approved share buyback is the most appealing.
Richardson: Perceptions of the huge overhang from the Government may depress the price until it happens but a Government exit would improve future growth prospects.

What's Telstra got going for it?
Wheeler: Telstra generates exceptional cash flow and among its international peers has one of the strongest balance sheets.
Richardson: Telstra's market power has been enhanced as competitors fall by the wayside and the company has a huge ability to improve its operating costs and efficiency.

Is it a buy or sell?
Wheeler: It's a long-term buy.
Richardson: At this price there is relatively little further downside and potentially good upside.


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