By Jason Fittler
Telstra has struck a deal with the Government and NBN Co for the sale of the infrastructure assets.
We expect to see the price improve providing an opportunity for those investors looking to reduce their exposure to the stock.
NBN deal agreed in principle:
1. The government and Telstra have struck a deal to include TLS's customers and infrastructure under the NBN Co (National Broadband Network Company).
2. The deal has an Net Present Value to TLS of ~A$11bn which is in-line with our expectations and is a positive outcome for TLS.
3. The deal comprises of A$9bn from the government for TLS to progressively migrate its customers on to the NBN Co and cost savings for TLS of ~A$2bn as the Universal Service Obligations are removed from 2011.
4. In additional TLS will be allowed to bid for LTE (Long Term Evolution) which is the next generation of mobile network bandwidth.
5. NBN Co will acquire access to TLS's fit for use infrastructure which includes cable pathways (ducts, pits and conduit) in addition to the right to acquire TLS's back haul services (fibre interconnecting the exchanges) and use of TLS's space in exchanges.
We expect to see the price of Telstra move back closer to our price target of $3.75 in the short term.
For many clients this will provide an opportunity for many share holders to reduce their exposure to the stock.
Keep in mind that TLS is still paying a 10% dividend and will maintain this over the next 2 years. This deal clearly removes uncertainty for Telstra shareholders and will allow TLS to concentration on its longer term position.
It is still early days and expectations are that it will take another 9 months to finalise terms of the deal before TLS will put the deal to shareholder in 2011.
For more information on Telstra (TLS) please call us on 07 4771 4577.