Punt on good buy for Canberra's goodbye ::

Author: Tim Blue
Date: 07/10/2006
Publication: The Australian

TELSTRA shares are a buy, if you like the sound of a 14 per cent dividend and believe the Government will not be too tough as it moves to sell its remaining 51 per cent stake in the telco.

Ahead of the details on Monday, the share market betting yesterday was that retail investors would pay $1.90 for the first instalment and not have to find a further $1.50 for at least a year. Such talk put power into Telstra shares, which closed 10c higher at $3.83. Investors shrugged off revelations that Telstra's annual earnings growth would halve out to 2010 because of its decision not to proceed with the $4 billion high-speed cable broadband internet network.

Austock senior client adviser Michael Heffernan said yesterday: "If you work on the basis that Telstra shares might drop 20per cent tomorrow, then you might lose your dough. But the chances of that happening are very slight indeed. Telstra could be a great stock, once it has the Government off its back."

While the Telstra dividend is without precedent, its business prospects are still clouded by concerns about regulation hurting profits. Goldman Sachs JBWere yesterday rated Telstra shares an "underperform" in the short term and "hold" in the long term.

Analysts said investors had to hope that Telstra's growth strategy would kick in by the time they had to pay the second instalment on the shares in about 18 months.

"Many will take Telstra shares and bale out when the dividend slips, but this could lead to a stampede and weakness in the price," one said. "The key still will be whether the institutional buyers who are short-sold now will be encouraged to stay around and keep buying, as the signs are showing."

Clime Asset Management chairman Roger Montgomery said government obligations and regulation remained a concern.

"How can you make a profit when the Government forces your business to render services that are unprofitable - a community service - and give free leg-ups to competitors?" he said.

For the doubters, there are still good prospects elsewhere. Think oil, resources, the big banks and consumer discretionary stocks, brokers said.

"Given the relative certainty in their business and regulatory clarity, you'd have to look at the banks, infrastructure stocks and property trusts," BBY banking analyst John Buonaccorsi said.

"The yields on banks such as Westpac and NAB might be around 5 per cent, but they are investments that let you sleep at night, and their yields are sustainable."

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