Chorus Limited (CNU)

By Jason Fittler

Chorus Limited (CNU) is a telecommunication business.

It operates a nationwide fixed line access network infrastructure in New Zealand. This infrastructure comprises local telephone exchanges, cabinets and copper and fibre cables.

CNU has six products & services including.

1. Basic Copper

2. Enhanced Copper

3. Fibre

4. Value Added Network Services

5. Field Services and

6. Infrastructure Services

We have followed this stock for past few years.  It had all the hallmarks of a good long-term steady income producing company much like Telstra.

But of course the main threat was always Government legislation. Back in November 2013 legislation changed the pricing structure. The aggregate price would fall from $44.98 to $34.44 cutting the revenue stream of Chorus.

This caused the stock to free-fall by 50%.

The announcement caused all type of issues with Chorus’s debt level and ability to refinance debt. This lead to Chorus making the decision to suspend all dividends over the past 12-months.

This week there was an announcement of a possible further change to the pricing structure. If passed it would see the aggregate price for services increase from $34.44 to $38.39.

The company share price made a solid recovery on this news.

At present we have a short-term price target of $2.85.

The company is trading at $2.45.

However, we note that the change to the aggregate price is currently only a draft policy and there is the risk that it will not be accepted.

If the new price of $38.39 does not come in you can expect to see the price of Chorus fall back.

I am cautious on this company and getting out to sit on the fence, as Government risk in our current economic climate is far too high.

Long-term we like the company but not the short-term volatility.

For more information about Chorus Limited (CNU)  please contact us on 07 4771 4577.