Australia | Dec 04 2006
By Greg Peel
Officially, the FNArena database now shows a B/H/S ratio of 4/4/2 for Telstra (TLS). This includes today’s recommendation upgrade from ABN Amro from Hold to Buy. Last month’s ratio was 3/3/4, so things are moving in the right direction, it seems.
However, regular readers will know FNArena was always dismissive of Deutsche Bank’s Buy rating, given the broker sacked its previous analyst, upgraded to Buy and, lo and behold, won a place on the lucrative T3 panel.
From another angle, Aspect Huntley’s rating is actually “Subscribe”, which is a specific reference to the T3 instalments (TLSCA). They have risen while the ordinary shares have fallen, so it’s a case of apples and oranges.
Take those two out, and you’re left with 2/4/2, and last month’s upgrades by Macquarie and SB Citigroup were based largely on the price fall. From a fundamental perspective, the only genuinely positive recommendation had previously come from Credit Suisse, whose long standing $4.78 target price has stood out like canine cojones for the past six months. Until today.
Don’t get all too excited though, as it’s really more a case of timing issues. ABN sees the bulk of IT capital expenditure being completed in 2007, and so cashflow will be released earlier than the analysts had originally anticipated. ABN has also read between the lines of recent Telstra-government chats to decide that FTTN has genuinely gone off the agenda until at least after 2010. That shifts more capex out into time.
This all discounts back to increase present valuation, and thus ABN’s 12-month target price moves from $4.11 to $4.50. With the stock closing yesterday at $3.73, a rating upgrade followed.
The average target thus moves to $3.97, with the Sell raters still convinced future revenues are overestimated.