Telstra: Mind The Gap

This story features TELSTRA GROUP LIMITED. For more info SHARE ANALYSIS: TLS

Bottom Line 19/08/14

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $5.39 / $5.16 / $4.96 – $4.92
Resistance Levels: $5.70

Technical Discussion

Telstra Corporation ((TLS)) is a telecommunications and information services company providing services for domestic and international customers. It is Australia's most prominent telecommunications company with brand recognition across all segments of the industry.  On January 21st 2014 it acquired O2 Networks, a developer of data networking and network security software. In May 2014 the Company completed the sale of its Hong Kong based mobiles business CSL to HKT Limited. In July 2014, Telstra acquired an undisclosed minority stake in Telesign Corp. For the year ending the 30th June 2014 revenues increased 3% to A$25.32B. Net income before extraordinary items increased 25% to A$4.48B.  The dividend yield is currently 5.3%.  Broker/Analyst consensus is “Sell”.

Reasons to retain a bullish stance:
→ The dividend has been increased with the company also announcing a one billion off-market buy-back.
→ Telstra continues to gain market share across mobile and fixed broadband as voice revenue declines.
→ Completion of the CSL sale which will free up $4b in cash that can be deployed for various projects, including acquisitions.
→ Australian interest rates to remain lower for longer meaning demand for higher yielding stocks will be maintained.
→ Technically, the recent broad consolidation has the potential to be a foundation for a continuation of the longer term trend higher.

Results announced last Thursday were well received by the market which resulted in a gap higher though more importantly the close was on the highs of the session.  Results showed fundamental growth of almost 5%.  There was also strong cash generation which fuelled an increase in the final dividend.  There is also talk of a 31c fully franked dividend in FY15 which equates to a yield of around 8%.  That’s the fundamentals out of the way so let’s take a look at the technicals.  Price had just broken up through a diagonal line of resistance during our last look at the company which was a big step in the right direction.  Recent strong price action has now taken TLS to the upper boundary of a solid zone of horizontal resistance which if breached portends another decent leg higher.  Despite the strong trend that commenced in late 2010 price has still not clawed back 50% of the movement down from the all-time highs set in 1998.  Although this highlights the technical damage that has been inflicted on the stock it also offers further upside – even in regard to a larger bounce only.  As long as investors remain focused on strong companies providing good yield there is no reason to expect anything other than a small retracement should some profit taking take hold.  The trend is strong and as such we simply go with the flow.

Trading Strategy

“…Momentum traders could even jump on right here and now…”  If you’re holding positions then place the trailing stop beneath the prior pivot low at $5.38.  A push beneath that level will result in diagonal support once again becoming resistance which would be less than ideal.  Should you be looking for an opportunity there is a gap that was left last week which eventuated on the back of results.  Generally the stock doesn’t tend to leave gaps so a low volume meander down to fill it would present a low risk entry.  Should this be the way forward I’ll be making a formal recommendation at those slightly lower levels.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms