T3 is only worth $2.80, say instos ::

Author: Tim Blue
Date: 05/10/2006
Publication: The Australian

INSTITUTIONAL investors remain wary of buying into the next slice of Telstra, saying its shares will need to be priced around $2.80 when the prospectus is released next week to be rated as worth buying for the long term.

Telstra shares closed unchanged yesterday at $3.74. It traded at a low of $3.45 six weeks ago.

One institution, Clime Asset Management, said yesterday the Government had a dilemma on its hands, as a high price would deter investors, while a low price could attract a raider that would seek to gain a substantial stake and move to break up the company.

Chairman Roger Montgomery said that his firm was considering taking a stake in Telstra at the right price, purely for the possibility of its being in a takeover play.

"A 5 per cent stake at current prices would only cost about $1.1 billion, could be fully-funded by the dividends and would be well within the purse of a big private equity player," he said.

Telstra T3 shares will be sold in two tranches, with the first priced around $2 and the second a year later at $1.50.

Mr Montgomery said: "We see the shares being worth only $2.80, so it will be interesting to see what price the Government puts on them."

International fund managers have expressed little enthusiasm for the shares, declaring them too expensive compared to other telco stocks around the world.

Mr Michael Hughes, chief investment officer of Barings Asset Management globally, said this week that his firm, which controls assets totalling $US37 billion ($49.5 billion), would not be a T3 buyer.

If you look at the valuations of Telstra, relative to some of the European telco companies, it looks expensive," he told the ABC's Lateline Business.

"If you really examine how they're running the company, it does look as if they are basically trying to hang on to market share in a much more competitive environment.

The growth opportunities, from a global perspective in that sector, look better to us elsewhere." Another fund manager, Investors Mutual chief executive Anton Tagliaferro, said his firm expected to be a buyer of T3.

"We have a substantial holding in Telstra, and will be taking more in T3 when we see the pricing next Monday. "Why wouldn't you be a buyer of a $24 billion organisation that has an annual cash flow of around $10 billion, in earnings before tax and depreciation?" Many big investors are wary of buying Telstra, citing concerns over the regulatory climate it will face in future and management's ability to defend itself against competition. "It's a tough call at the moment," said Mr Philip Pepe of boutique asset manager Platypus. "We're uncertain until we can see more clarity on price, and the state of the relationship with the Government and the regulatory world."

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