Brokers' opinions divided on Telecom's run of form

Opinion is divided on whether Telecom can stretch its run of form this year after its shares rose 3.4 per cent yesterday to their highest level for six months.

In a burst of activity in the last minutes of trading, the shares touched $5.44 but then dipped to finish 17c up at $5.42.

Around 4.7 million shares worth $25 million changed hands in active trading.

Telecom's shares ended last year at $5 and have risen on all six trading days so far this year.

On Wednesday, they gained 8c when a big buyer entered the market.

The shares have surged 31 per cent since they hit an eight-year low of $4.13 on October 24 and they have risen 8.4 per cent this year.

Telecom has a 22 per cent weighting in the NZSE-40 capital index and the gain in its shares has helped this market barometer reach an eight-month high of 2107.2.

Brokers said some institutions had been caught short of Telecom stock after Wednesday's big buyer scooped up stock.

DF Mainland broker Sam MacDonald said many traders had chased Telecom stock on the US ADR market but had failed to fill their orders.

He felt the local market was a bit top-heavy and the buying had been overdone.

"We should be back around the $5 mark. There's no reason for them to be up at these levels although we could easily see $5.50 before we get a decent pullback."

But ABN Amro analyst Jeremy Simpson said Telecom could go higher and he had put a valuation of $5.66 on the stock. He said his firm had raised its valuation on the company after Telecom lifted its prices last month.

Telecom's 4.5 per cent lift in line charges had helped turn investor sentiment towards the stock.

Mr Simpson said that in comparison with other telcos around the world and even against other New Zealand companies, Telecom was not aggressively priced.

It shares tended to trade at a discount to its peers because the New Zealand market was both small and slow-growing. Australian counterpart Telstra was much more aggressively priced.

Mr Simpson said telcos had benefited from a global change in sentiment this year from the bearish mood that prevailed last year.



Telecom's domestic franchise was powerful, as reflected in its confidence in lifting prices, and it had not been given full recognition for its strength in the home market.

But what happened to its $2.2 billion investment in AAPT in Australia might have a more telling impact on the share price this year.

Mr Simpson said Telecom was spread widely in Australia and it needed to sort out during its current strategic review exactly where its market was.

"They've kind of been all over the place. They have second-generation deals with Vodafone, they have third-generation deals with Hutch [Hutchison].

"They own a lot of infrastructure, they lease some infrastructure, they re-sell Telstra products to the consumer market, so they need to fine-tune their strategy."

- NZPA