Telstra breaking up is something that was always going to be on the cards for the company. Having a look at it, is this good for Telstra shareholders? If we look at other large Telco’s globally that have gone through this sort of break up, the result is almost always cheaper costs for consumers , but the number of customers in total , and normally by a significant factor. In this case I don’t think that we will see that, regardless of what the media and the government say, we have pretty solid competition in mobile and long distance and comparable costs for other countries (i.e. UK and US) do not have a major amount of difference in pricing.
Telstra is a vertically integrated company, meaning that it does everything to do with Telecommunications in this country in one form or another. The government is proposing that Telstra be broken up and this can actually be of great benefit for both the company and the shareholders over the medium to long term. If they do break up the company then a couple of different things will have to happen.
The assets will have to be either sold, spun off or a combination of the two. If the assets are sold for Cash, then the company has do something with that Cash, they could either do a special dividend (high possibility considering the past record of special dividends), capital return (unlikely as they have a lot of franking credits that need to be used), pay down debt (unlikely as they have one of the most under geared balance sheets out there) or they spin the businesses off and float them releasing value that way and solving there problem at the same time.
When is comes to companies listing on the stock exchange, the sum of its parts being greater than the whole is very true. Diversified companies tend to not specialize and become a jack of all trades and master of none. A good example of a Telco that has concentrated its attention on a particular business is Vodafone; it concentrates on Mobile and over the last 15 years has grown dramatically outside its native UK to cover most of the globe. Breaking up of Telstra should unlock a lot of value both short term and if it’s done correctly the long term as well.
Ronin Asset Management Pty Ltd trading as Cashflow Trader is an Authorised Representative (No. 333209) of Sonray Capital Markets Pty Ltd AFSL 231151 and we do not endorse or vouch for the accuracy or authenticity of postings and no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein. Posters are individually responsible for the accuracy and authenticity of their postings. Unless specifically stated, Posters on this blog are not investment advisers and do not hold the necessary licence or have any formal qualification to give investment advice. All postings are of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. www.asic.gov.au has a list of licensed advisers and www.fido.gov.au provides general guidance about investing. The nature of the internet may make it hard to identify or locate the Poster. Securities cannot be offered to you for sale or issue through postings and it is advisable that you alert Ronin Asset Management or ASIC Infoline on 1300 300 630 if you have good reason to suspect that any postings are inaccurate, are based on inside information or are likely to mislead or deceive people who view or use the postings. Posters may comment optimistically or pessimistically on stocks in an attempt to influence other investors. It is not possible for Ronin Asset Management to moderate all posts. Some misleading and inaccurate information may appear and if you have concerns with a post, you must report the violation to us immediately.
Telstra is a vertically integrated company, meaning that it does everything to do with Telecommunications in this country in one form or another. The government is proposing that Telstra be broken up and this can actually be of great benefit for both the company and the shareholders over the medium to long term. If they do break up the company then a couple of different things will have to happen.
The assets will have to be either sold, spun off or a combination of the two. If the assets are sold for Cash, then the company has do something with that Cash, they could either do a special dividend (high possibility considering the past record of special dividends), capital return (unlikely as they have a lot of franking credits that need to be used), pay down debt (unlikely as they have one of the most under geared balance sheets out there) or they spin the businesses off and float them releasing value that way and solving there problem at the same time.
When is comes to companies listing on the stock exchange, the sum of its parts being greater than the whole is very true. Diversified companies tend to not specialize and become a jack of all trades and master of none. A good example of a Telco that has concentrated its attention on a particular business is Vodafone; it concentrates on Mobile and over the last 15 years has grown dramatically outside its native UK to cover most of the globe. Breaking up of Telstra should unlock a lot of value both short term and if it’s done correctly the long term as well.
Ronin Asset Management Pty Ltd trading as Cashflow Trader is an Authorised Representative (No. 333209) of Sonray Capital Markets Pty Ltd AFSL 231151 and we do not endorse or vouch for the accuracy or authenticity of postings and no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein. Posters are individually responsible for the accuracy and authenticity of their postings. Unless specifically stated, Posters on this blog are not investment advisers and do not hold the necessary licence or have any formal qualification to give investment advice. All postings are of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. www.asic.gov.au has a list of licensed advisers and www.fido.gov.au provides general guidance about investing. The nature of the internet may make it hard to identify or locate the Poster. Securities cannot be offered to you for sale or issue through postings and it is advisable that you alert Ronin Asset Management or ASIC Infoline on 1300 300 630 if you have good reason to suspect that any postings are inaccurate, are based on inside information or are likely to mislead or deceive people who view or use the postings. Posters may comment optimistically or pessimistically on stocks in an attempt to influence other investors. It is not possible for Ronin Asset Management to moderate all posts. Some misleading and inaccurate information may appear and if you have concerns with a post, you must report the violation to us immediately.
