Solid support for T3 float
Anthony Black
Your Money editor
October 28, 2006 11:00pm
Sunday Herald Sun
THE Telstra float has been structured to attract investors. But is it a good deal? The Sunday Herald Sun asked several analysts to spell out the benefits and risks of the T3 offer.
Would you buy T3? Richard Nettlefold, of Wilson HTM, said: "I am advising my clients to buy T3. The sale is structured in a way that potentially offers good returns to investors.
"Investors pay $2 up front (for an instalment receipt) with the balance due in 18 months. The final instalment price will be determined during three trading days in November. We expect a total price of between $3.50 and $3.80 over two instalments.
"Telstra shares have been trading between $3.50 and $3.85, so there is support for the stock at those levels. Our 12-month valuation is $4."
Why does T3 appeal? Mr Nettlefold said a retail discount of 10c a receipt on what institutions paid was attractive, particularly after strong overseas demand for scrip. He said strong support for T3 had resulted in broking house allocations being scaled back.
Dividend: T3 is offering a 28 cent dividend for the first year, which translates to a yield of 14 per cent. And the dividend is fully franked, so the company pays 30 per cent tax.
"Investors not expecting any capital growth will buy T3 for dividend yield alone," Mr Nettlefold said. "But the T3 share price can go up on improving revenue and earnings and much of the bad news appears to be behind it."
Bonus: Mr Nettlefold said T3 would reward investors with one share for every 25 they owned provided they held them for 18 months.
"The bonus share is a lure to invest, but it could turn out to be a real bonus," he said.
"I'm not buying T3 for traders, I'm buying it for mums and dads to sit on to pick up bonus shares."
Nasty taste of T2: Mr Nettlefold said: "Put emotion aside and try and forget about losing money in T2. A sound strategy might be to sell T2 shares for a loss and invest the proceeds in T3.
"Investors can offset T2 losses on other profitable investments to reduce capital gains tax. The smart money is buying T3."
Freedom: Michael Heffernan, of Austock, said the benefits for buying T3 outweighed the risks.
"One of the biggest benefits about the T3 float is the Telstra board will finally get the government off its back," he said. "It can determine its own destiny without being answerable to politicians with vested interests."
Mr Heffernan said Telstra appealed because it had so many revenue streams.
"It has fixed line, mobile, broadband, search directories and pay TV," he said. "In Australia, Vodafone has mobile."
Risks: Peter Russell, of Intersuisse, said the regulatory environment could still hamper Telstra and he would not be buying shares in the float.
"The regulatory environment inhibits Telstra's profits, while it gives a leg up to its competitors," he said.
http://www.news.com.au/heraldsun/story/0,21985,20660942-664,00.html
