Comments on: Telstra Calling

By: Simon Maxamillion

Simon Maxamillion — Tue, 05 Oct 2010 05:56:24 +0000

As I write this Telstra is $2.62, Makes all the research look like rubbish. I think the stock is worth $2.34 based on a reduction to earning and and payout ratio of 60% and a market PE of 15. It may be time to thinks about a protected buy write strategy for this one.

By: Dean Morel

Dean Morel — Tue, 22 Sep 2009 12:29:30 +0000

Peter, this one sure is Micro cap around $10M.
ASW Preliminary Report
ASW 1 c dividend 8/10, eps 2.1c, price 25c, NTA 9.2c no increase. “Positive outlook, stringent cost control, seeing some growth in activity and attracting new customers.”
Revenue up 98%, Profit up 27%,
Dividend paid out of cash.
There’s some easy comparisons that can be made and a clear path for growth.

First Question: Why did Admin Exp increase 3X ($1251k) and Other op exp increase 4X ($762k) when sales merely doubled ($3453k)? If they’re serious about those stringent cost controls and revenues show some growth then FY10 could be excellent. $275k of admin increase from Kim Chong salary. Where costs kept low pre-listing to fatten margins and FY09 a better indication of margins going forward? Compare to other registry companies.

Incredibly low turnover, avg volume 9500!

By: Dean Morel

Dean Morel — Tue, 15 Sep 2009 13:36:53 +0000

Hi Christina
I couldn’t believe the timing. On the plus side I was writing Telstra up as I was looking at selling puts and if it wasn’t for my sore neck I would have finished on the weekend and probably sold puts on Monday. That might be the first time a sore neck has saved me a few bucks. I had the same timing on my initial CSL analysis, a day after writing up my thoughts on CSL the board announced they were terminating the merger agreement Talecris, which spoiled the whole theme of my analysis.
A few more of these coincidences and I’ll start thinking I should shut-up.
By the way, did I mention you really took the shine off my self congratulations for my SMSF returns I thought I had done Ok, but you knocked it out of the park. Fantastic returns you had last year, well done. I’m embarrassed to post mine now

By: Christina

Christina — Tue, 15 Sep 2009 12:11:38 +0000

Hi Dean

What incredible timing for this post on Telstra! Was quite shocked to see the 4% drop this morning but we also agree it is just an emotional response and fundamentally, nothing has changed and this proposed restructure may be a good thing. Kingsley has also been consulting in Telstra for the past 5 years and will be back there starting October.

Interesting to see that Roger Montgomery has valued Telstra at $4.01. This is even higher than what Stockval has valued it at. Current Stockval valuation is $3.74. Would have happily sold some ITM puts today but I have already maxed out my allocation for Telstra.

By: Peter

Peter — Tue, 15 Sep 2009 04:45:19 +0000

You are right. TLS will not lose their customer base. When I ran an organisation, I was inundated with telco offers left right and centre. Over 4 years of management, we stayed with TLS bcos telco is such a critical element of the business. The homes may churn and burn, but the business clients are pretty sticky IMO.

The problem is TLS has not reached my 50% discount buy criteria. At the moment, I only have one microcap that fits this criteria- ASW, which I mentioned before. Bid 25 ask 30 with very little volume. Oh, and Biota still remains cheap after the spike today. Anyone still believes the market is efficient all the time?

By: Dean Morel

Dean Morel — Tue, 15 Sep 2009 04:37:49 +0000

Hi Peter
I coincidentally caught up with a friend for a coffee this morning, he plays on your team and specialises in telecommunications. I always enjoy hearing his views on the industry. He was surprised by the markets surprise at this heavily telegraphed announcement. He did have a lot more to say, maybe I’ll put a post together on that.

As always thanks for your thoughtful comments, it’s great to get your view on things. I’ve consulted to Telstra in the past, so I’m going to leave your ‘left wing/entitlement/engineer tech‘ comment alone, but I won’t argue. I agree Sol was a blessing, though I think we’re in the minority. He was overpaid, but for that I blame the board not Sol and in the scale of things that’s insignificant anyway.

I too mainly see upside from the separation, but the market hates uncertainty. Figuring out the value of the assets that will be sold / spun off is the next task. Will the NBN buy Telstra wholesale? There’s should be a number of buyers for Foxtel.

Telstra’s number one advantage remains their massive customer base and brand. They are unlikely to loose either of those over the next decade, despite the seemingly constant complaints about their service.

Do you see any other good buys in the market at the moment? Nice rise on Biota today on good volume.

By: Peter

Peter — Tue, 15 Sep 2009 02:18:12 +0000

I smell blood on the streets, but not quite enough yet.

Over the last 10 years, there are 3 problems I see with TLS:

1. Universal Service Obligations;
2. Access Regime;
3. Internal Culture.

The culture element within TLS makes me sick. Imagine Labor left wing voters with a huge sense of entitlement, and an engineer/tech mentality. A big reason why labor costs could not be reduced. The new workplace legislation does not help either. This is TLS’ major problem.

Over the last few years, there are some critical transformation. T3 was a godsent, to get rid of govt shackles. Personally, Sol was also a blessing, as he gave everyone a big kick in the butt, and implemented changes to the culture within TLS.

The forced separation is a big blessing IMO. The non-integrated units, especially retail, will be thrown to the wolves of competition, and be forced to innovate and improve customer service which has been so sadly lacking. The wholesale part will still be regulated, but it will be the pipeline steady infrastructure business.

I only see good for TLS coming from the reforms. The market obviously does not share my sentiment.