Comments on: A few quick comments

By: Dean Morel

Dean Morel — Thu, 26 Nov 2009 22:49:58 +0000

Hi S
I see mobile communications/data and broadband being the being the large growth drivers. I believe there is currently a case pending which could affect the value of Telstra’s ducts, though can’t find a source for that. I’m not as enthusiastic about the long term value of Foxtel. Cable companies in the US are starting to feel the pinch of internet delivered media. I see Foxtel as yet another middleman that is likely to face intense competition and ultimately loose. Newspapers are the fist victim of this wave while the next wave will see cable companies, record companies and publishers fighting for survival. The spoils rightfully belong to the content creators and for too long the middleman have been the ones taking the lion’s share of profits. Gen Y are growing up in a world where they search, find and share exactly what they want to listen to, read and watch, they don’t need the middlemen. I’m unsure of the margins within Foxtel.

Telstra has a good ROE, granted that is inflated by their debt, but a utility like Telstra can afford their debt so I don’t have too much an issue with that. Mobile data has grown at 39% CAGR for four years, broadband at 30% CAGR. That is where they have been investing and where future returns will come from.

Over the last three years Telstra has invested heavily in their future, $12B at last count. We are now at the point of reaping the returns from those investments. Yes we do have that pesky sovereign risk, but without that uncertainty there is no way we could have picked shares up under $3.20.

By: S

Thu, 26 Nov 2009 12:30:57 +0000

Roger montgomery wrote an interesting piece on TLS a while ago. He is a bit negative on it.

http://rogermontgomeryinsights.wordpress.com/2009/10/17/is-telstra%e2%80%99s-monopolistic-power-generating-outstanding-profits/

By: S

Thu, 26 Nov 2009 12:25:40 +0000

Hi Dean, telstra seems to be moving in the right direction. Looks like the bill won’t get to parliament this year with Turnbull doing his Hari-Kari over ETS. There’s another 3 or 4 months before the future fund can offload another wad. I am thinking of selling down from 3.60.

At the end of the day the ROE and intrinsic value are not likely to go up much in the future. It hasn’t in the last decade despite it being a monopoly. It’s a monopoly without monopoly returns… that’s turned into a utility with a bit of a twist (sovereign risk). About the only sector of the market that’s undervalued anymore are the utilities, so maybe it will go up with the rest of the utility like plays as people seek yield until valuations in the rest of the market become more compelling.

They should split it up and float the bits : the cabling, ducts and local loop as a utility, the mobile growth portion and the bit that will be worth the most in the long term (50% foxtell).