Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


UBS rates Chorus a 'buy', Telecom cut to a 'sell'

UBS rates out-of-favour Chorus a 'buy', Telecom cut to a 'sell'

By Suze Metherell

July 31 (BusinessDesk) - Chorus, whose shares have halved in value from their 2012 peak, offers long-term value given the prospects for ultra-fast broadband, while Telecom faces a challenge rebranding in a competitive services market, UBS analysts say.

Network operator Chorus is rated a 'buy' in a UBS report this week which cut Telecom, which will rebrand as "Spark" on Aug 8 and is New Zealand's biggest telecommunications provider, to 'sell' from 'neutral'. Shares of Telecom have gained some 45 percent since it split out Chorus in October 2011 as a separately listed company. Chorus's share price has plunged some 51 percent since November 2012, when the Commerce Commission first slashed its regulated prices for broadband services on the ageing copper lines network.

Chorus is now ahead of target building the UFB network, which is expected to deliver long-term profit growth along with its residual rural broadband services, UBS says. Facing regulatory uncertainty, such as regulated copper service price cuts that Chorus said left a $1 billion hole in funding for the government-sponsored national roll-out of fibre-optic cable, the network provider has focused on its cash management and reshaping its operating model, including introducing new products.

"Although Chorus's investment story remains complex, progress on non-regulatory issues is positive," UBS analysts Richard Eary, Tristan Joll and Eric Choi wrote in a July 28 report. "We retain the view that fundamental value will emerge beyond the regulatory maelstrom."

Earlier this month, Chorus cut a deal with Crown Fibre Holdings, the government body overseeing the UFB rollout, to bring forward funding of $178 million though at a high interest rate and the expense of dividends. In March, Crown Fibre gave Chorus greater flexibility in building the network provided it meets an agreed deadline. Chorus also gained more wiggle room under its banking covenants, allowing for weaker earnings relative to its borrowings.

Telecom's long-term profit growth is less clear, according to the UBS report. Income from its fixed lines fell 11 percent to $2.5 billion in the year ended June 30 2013, reflecting the migration of customers to the more competitive mobile market. According to 2013 census data, households with access to a fixed-line telephone fell to 81 percent from 88 percent in the 2006 census, while mobile access rose to 79 percent from 71 percent.

Telecom shares have advanced about 25 percent this year, outperforming the NZX 50 Index's 8.9 percent gain, "with little to support a bolder growth story longer term," UBS said. Telecom is cutting costs and rebranding in its shift away from declining fixed-line calling to focus on data, mobility, internet television and cloud services.

"Our regular tracking of market pricing reveals that competition remains intense," the UBS report said. "On one level this is driving product innovation. On another Telecom's strategic actions speak to a re-positioning of the business."

Shares of Chorus rose 1.2 percent to $1.735 in afternoon trading, below the UBS price target of $2.85. Telecom rose 1.8 percent, snapping four days of decline, to $2.825, above the UBS price target of $2.30.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Land & Water Forum: Fourth Report On Water Management

The Land and Water Forum (LWF) today published its fourth report, outlining 60 new consensus recommendations for how New Zealand should improve its management of fresh water and calling on the Government to urgently adopt all of its recommendations from earlier reports. More>>



Welcome Home: Record High Migration Stokes 41-Year High Population Growth

New Zealand annual net migration hit a new high in October as more people arrived from than departed for Australia for the first time in more than 20 years. More>>


Citizens' Advice Bureau: Report Shows Desperate Housing Situation Throughout NZ

CAB's in-depth analysis of over 2000 client enquiries about emergency accommodation shows vulnerable families, pregnant women and children living in cars and garages, even after seeking assistance from the Ministry of Social Development and Housing New Zealand. More>>


Speaking For The Bees: Greens Call For Neonicotinoid Pesticide Ban

The National Government should ban the use of controversial pesticides called neonicotinoids after evidence has revealed that even at low doses they cause harm to bee populations, the Green Party said today. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news