Stock Takes: Telecom cloud lifts

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Telecom's move to split itself in two after winning the lion's share of the nation's ultra-fast broadband contracts has been greeted with relief by fund managers, who sense the stock is nearing the end of years of uncertainty.

Telecom, New Zealand's second biggest company after Fletcher Building, won 70 per cent of the Government's ultra-fast broadband tender. Under the deal, Telecom's network arm Chorus must become a separate company.

Telecom's share price has taken a beating while regulatory uncertainty has dogged the stock. Over the last 52 weeks, it has gone as low as $1.78, which compares with its 1991 issue price of $1.90 a share.

"I've been covering Telecom since 1993 and the last few years have probably been the most difficult for the company in the way that it has had to face up to increased regulation and competition," said Paul Richardson, chief investment officer at BT Funds Management.

Mark Brown, senior investment manager at OnePath, welcomed the news but said the devil could well be in the detail.

"The good news is that finally we have some clarity and this long-awaited deal, and long-mooted structural separation, is now under way," he said.

Telecom's share price rallied sharply on the separation news but Brown said the market may have moved too soon, given the lack of detail surrounding the deal.

Telecom closed yesterday at $2.43, down 5.5c, after news that the Commerce Commission is set to issue proceedings against the company for not giving equal access to rivals on its unbundled copper network.

SMARTPAY EYES ASX

SmartPay, New Zealand's biggest eftpos machine supplier, is seeking a listing on the ASX after reporting its first annual net profit. The company, which provides payment and transaction services in New Zealand and Australia, announced a net profit of $100,000 for the March 31 year, compared with a loss of $2.6 million in the previous year.

SmartPay's earnings before interest, tax, depreciation and amortisation leaped to $7.1 million from $2 million.

SmartPay expects to list on the ASX in August or September and its interest costs to halve in the current year. The company's origins date back to 1987, when it listed as furniture manufacturer Damba Holdings.

The name changed to Cube Capital in 2001 and in 2004 the company disposed of the Damba Group.

Cube bought the eftpos company SmartPay NZ in 2006 and changed its name to SmartPay in a backdoor listing. In 2009, SmartPay bought ProvencoCadmus, which had gone into receivership.

SmartPay's shares closed down 1c yesterday at 21c.

TOWER'S SHADOW

The impact of the Christchurch earthquake should be in evidence in today's first-half result from insurance company Tower Group.

The company has bought additional cover to maintain its reinsurance position after the February 22 quake, which will increase its costs by about $15 million to $20 million in the current year.

Big changes lie ahead for Tower. Guinness Peat Group has embarked on a realisation strategy to return capital to shareholders, which ultimately will leave it with just its British thread-making business Coats.

Among GPG's many assets is a 35 per cent stake in Tower, which is worth $165 million at today's prices.

GOLDMAN ABSORBS GS&P

Global investment banking giant Goldman Sachs Group and Goldman Sachs & Partners Australia Group Holdings (GS&P) said yesterday that the minimum 75 per cent shareholder acceptance condition required for Goldman Sachs to acquire the remaining 55 per cent of GS&P has been satisfied.

The proposed acquisition is expected to be completed on July 1.