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Chorus shares jump 8% after maiden profit, dividend forecast

Chorus shares jump 8% after maiden profit, dividend forecast

By Paul McBeth

Aug. 27 (BusinessDesk) - Shares in Chorus jumped 8 percent after the telecommunications network operator reported its maiden profit and forecast a 25.5 cent dividend in 2013.

The stock climbed 26 cents to $3.42 in trading today, the highest since early May when the Commerce Commission indicated it wanted a lower regulated average price for some of Chorus' copper network services.

Chorus's board declared a fully-imputed dividend of 14.6 cents per share, or $56 million, to be paid on Oct. 5, and said next year's return will be 25.5 cents. Regulatory uncertainty over copper pricing meant it couldn't see farther out.

Net profit was $102 million, or 26 cents per share, in the seven months ended June 30, on sales of $613 million, the Wellington-based company said in a statement. Annualised operating revenue, which includes its time under Telecom's umbrella, rose to $1.03 billion from $1.02 billion in 2011 on a pro-forma basis. Annualised earnings before interest, tax, depreciation and amortisation of $665 million beat analysts' consensus forecast of $638.4 million.

The result "looks solid and people will have taken some comfort from that," said Guy Hallwright, an analyst at Forsyth Barr. The rebound in the share price looks like it came after "fears of a dividend cut" didn't emerge, he said.

Chorus was spun-out from Telecom as a separately-listed company last year to free up the telecommunications company from its regulatory burden and allow the network operator to successfully win a billion dollar subsidy to build a nationwide fibre network and rural broadband system.

Chief executive Mark Ratcliffe said its copper pricing is "highly uncertain" as the Commerce Commission looks at de-linking the prices of certain services.

"This means the regulatory framework and pending regulatory processes remain central to how incentivised or aligned the industry will be in making choices that support the Crown's UFB (ultrafast broadband) policy," he said. "We continue to remain highly engaged with the Commerce Commission."

The bulk of Chorus' sales were to former parent Telecom, with $523 million, or 85 percent, coming from the country's biggest listed company. Most of the network operator's sales came from its copper network, with $399 million from basic copper services, $89 million from enhanced copper, and $28 million from fibre.

As at June 30, Chorus had 1.78 million fixed line connections, of which 1.59 million were base copper. Total broadband connections were 1.04 million.

Ratcliffe sees growth opportunities in the growing emergence of wireless technologies, with mobile devices driving fixed-line uptake as more households use a central connection.

"Most people are using mobile devices linked to their fixed network," Ratcliffe told BusinessDesk. "Allowing people to use their home broadband on mobile and fixed-line is complementary to both."

Chorus spent $346 million on gross capital expenditure in the period, and retained its forecast capex spend of $560 million to $610 million in 2013. It estimates the government's UFB project will cost between $1.4 billion and $1.6 billion to build by 2019, while the rural broadband initiative is expected to cost between $280 million and $295 million.

Ratcliffe said entertainment services will be the primary driver for fibre uptake, and the market won't have a clearer idea as to what the penetration will be until the likes of Sky Network Television and Television New Zealand share their strategies for offering video content over the network.

The stock is rated an average 'outperform' based on 10 analyst recommendations compiled by Reuters, with a median target price of $3.44.


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