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ABN Amro analyst Andrew Hines has downgraded Telstra's forecast earnings
by 3.4 per cent for the current financial year.
In a research note released ahead of the telecom group's interim results next
month, Mr Hines says lower revenue from Foxtel pay television services and the
regional wireless company CSL, combined with a slowdown in revenue growth in
mobiles, would hit earnings in 2002-03.
``We have increased our cost assumptions in 2003 due to higher mobile
subsidies in the December quarter and we have skewed the cost reduction programs
into the second half of the year, in line with company comments," the analyst
said.
Ahead of Telstra's interim results scheduled for release on February 27, Mr
Hines said investors should look out for any change to the company's dividend
policy.
``In the 2002 interim result the company surprised the market with an
increase in dividend ... but warned that further increases should not be
expected," he said. ``We are forecasting an unchanged 11c a share interim
dividend but Telstra has the cash flow to support a higher amount provided that
it is relaxed about a potential credit rating downgrade from Moody's."
Moody's recently put Telstra on negative credit watch and warned that higher
dividends could prompt a downgrade.
Mr Hines acknowledged the telecom's 5 per cent share price rally so far this
year in line with improving sentiment towards the sector overseas but said he
remained ``very concerned" about the growth outlook for group.
``Telstra's premium pricing can be partially justified due to the strength of
the company's balance sheet and cash flows and its dividend yield," Mr Hines
said. ``However, we see limited upside from current levels and downside risk if
earnings downgrades continue."
Mr Hines forecasts negative earnings per share growth in 2002-03 for Telstra
and average growth of just 2 per cent to 2005. Normalised net profit after tax
for the current financial year has been cut by $141 million to $4.03 billion.
The ``hold' recommendation has been maintained, although the share price
valuation has been cut from $5.04 to $4.87. Shares in Telstra closed at $4.66
last Friday.
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