Launch goodies galore ::

Author: John McCarthy
Date: 07/10/2006
Publication: The Courier Mail

TELSTRA shareholders are expected to be offered a right of one share for every two currently held and a minimum guaranteed allocation of 2000 shares when the telecommunications giant launches its prospectus on Monday.

There is also expected to be a 10¢ a share discount to retail investors for the $2 first instalment which would give a yield of about 14 per cent.

The second instalment will be paid in 18 months and the generous yield is an enticing bait for small shareholders to remain loyal to the troubled telco.

Investment analyst at Wealth Within Dale Gillham said Australian and international institutions had already indicated they were not interested in Telstra, which is supported by the Government's admission that they expect to sell the bulk of the float to mum and dad investors.

"So if the informed don't want to buy Telstra, what do you think the Government is planning to do?

"Invest millions in promoting this share to those they deem ignorant, with the dangling carrot being an offer of a larger than normal dividend?"

However, he said a big dividend was not so good when its share price had fallen 40 per cent in the past year "and from what I can see there is more downside to come".

"Buying an investment that loses more money than it provides is what I call financial suicide – no wonder the institutions don't want this share."

Clime Asset Management has said it values the shares at $2.80.

Other fund managers think there are much better value stocks elsewhere in the world.

Regulatory threats have also dampened enthusiasm.

Shares in the communication giant rallied slightly on the ASX yesterday with speculation the investors were reluctant to sell ahead of the release of details of the $8 billion third tranche.

At its strategy briefing yesterday Telstra attempted to remain upbeat ahead of the prospectus but many analysts remain unconvinced.

Yesterday's day-long investor briefing brought more questions but the critical one appeared to be how long the telco can maintain its dividend.

Macquarie Equities' David Halliday said

Telstra was relying on a flat cost base and staff cuts to control margins. "That's got to ring a lot of alarm bells before people start putting money into T3.

"A 14 per cent yield looks great for a year, but what happens if the dividend isn't sustainable."

Although Telstra has downgraded its earnings guidance, analysts believe the interest in Monday's prospectus meant there was no effect on the market.

There was speculation yesterday that the prospectus could be delayed because of the ongoing stoush with the Federal Government over the appointment to the board of former Howard adviser Geoffrey Cousins.

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