NZ stocks: Telecom falls to new low

Telecom shares fell to a new all-time low today, making it difficult for the New Zealand sharemarket to keep up with other markets.

The benchmark NZX-50 index closed down 6.837 points, or 0.213 per cent, at 3200.959. Turnover was worth $94.98 million. There were 34 rises and 45 falls among the 116 stocks traded.

"It is a disappointing performance because the offshore markets were firmer. We've given up ground and it is mainly due to Telecom," said Grant Williamson, director at Hamilton, Hindin, Greene.

Telecom closed down 3c at 214 and traded as low as 213 today. About $20.66m worth of its shares changed hands.

Mr Williamson said there was continued selling, particularly by retail investors, after Telecom said yesterday that reform of the Telecommunications Service Obligation would cost it up to $56 million in earnings a year for 2011-2013.

Investors were worried that the reduced earnings would lead to a cut in dividend payment and they could not see a growth story for the stock for the next three years.

Mr Williamson said there was some switching out of Telecom and into other high yield utilities like Vector, which rose 2c to 209.

James Lee, head of institutional equities at First NZ Capital, said an earnings downgrade was never good for a stock and "pushed out the earnings recovery story".

The company has been paying annual dividends of 24c a share and its earnings for 2011 are only expected to be 20c a share.

His firm's valuation of Telecom was around 240 but given the risks buyers may be around the low 200 mark.

Fund managers commented off the record that valuation of the stock was difficult due to the uncertainties surrounding it.

Infratil rose 2c to 169. Contact Energy fell 7c to 599 though brokers said there was little new in an operating update it put out today. NZX fell 3c to 195 even though it said it was working on developing an electricity hedge market.

Fletcher Building rose 1c to 813.

Ebos rose 5c to 630, Cavalier Carpets fell 5c to 280 and Nuplex rose 3c to 335. NZ Refining rose 3c to 364 after reporting improved refining margins earlier this week.

In the US, the Fed's mildly upbeat take on the US economy and its plans to hold interest rates low gave stocks a lift.

The Fed also said in a statement following its meeting on monetary policy that businesses were spending "significantly" more on equipment and software. The central bank gave a marginally more upbeat assessment of the job market, though it said employers remained reluctant to hire.

The Fed also said it still planned to stop buying mortgage-backed securities from Fannie Mae and Freddie Mac at the end of the month.

"We are passing through a historic phase where the Fed's emergency responses to the Great Recession are now behind us and we're incrementally getting back to business as usual," said Robert Dye, senior economist at PNC Financial Services Group in Pittsburgh.

Stocks rose earlier after the Standard & Poor's credit rating agency signed off on Greece's plan to slash its budget deficit.

The Dow Jones industrial average gained 0.4 per cent to 10,685.98, the Standard & Poor's 500 index rose 0.8 per cent to 1159.46, while the Nasdaq composite index rose 0.7 per cent to 2378.01.

- NZPA