$826m Telecom profits forecast

By Richard Braddell

WELLINGTON - Telecom is expected to report an annual profit close to $826 million tomorrow - only slightly better than the $820.3 million for its 1998 financial year.

But analysts believe Telecom is poised for stronger profitability with the recovery in the economy likely to provide a boost in long distance calling markets in the current year.

However, analysts will be looking hard at Telecom's performance in the data and Internet markets - which it now breaks out as a separate reporting category - and cellular, where pre-paid connections have undergone a sharp boost from The Warehouse sales, said to be running at 15,000 a week.

An analyst said Telecom was unusual among telcos internationally in having flat earnings and profits.

But this year's outlook was more positive, because the price-slashing in long distance calling a year ago would not be repeated and profits from sign-ups in prepaid cellular would start to flow to the bottom line as free minutes were exhausted and phone subsidies were written off.

But while analysts thought Telecom's recent share price pasting was excessive, they provided a catalogue of reasons why the market has been less than sanguine.

Among them:

* A move by investors to cyclical and resource stocks, leading to sluggish performances by telco stocks around the world.

* Cash demands from the Contact float and the $1.8 billion payment a month ago on Ameritech instalment receipts.

* The litigation with Telstra, which has provided further force to proposals for regulatory reform.

* Possible reform of the Commerce Act which would make Saturn Communications more aggressive in pursuing action against Telecom's street-by-street pricing in Wellington.

* An election in November providing further negative sentiment for Telecom.

Nevertheless, one analyst said now was a good time to reconsider the stock, particularly as it offered a good dividend yield.