Chorus tipped at up to $5 on debut

Mark Ratcliffe, chief executive of Chorus. Photo / Kenny Rodger

Chorus shares could be worth as much as $5 each when the company lists on the New Zealand stock exchange this week, says a market analyst.

Chorus, Telecom's network and infrastructure business, is on the verge of becoming a separate public company to take part in the Government's ultra-fast broadband scheme.

This will see Chorus roll out high-speed fibre internet cables in 24 towns and cities across New Zealand over the next eight years.

Its split with Telecom, due to be completed on November 30, is one of the biggest corporate shakeups in New Zealand history and has far-reaching implications for the local telecommunications industry.

Telecom will become a stand-alone retail business but keeps hold of its mobile network.

Chorus will be a wholesaler and own 130,000km of copper lines, more than 27,000km of fibre cables and more than 500 telephone exchanges.

Forsyth Barr analyst Guy Hallwright said Chorus was likely to be a stable company.

"It will become an entrenched monopoly, presumably regulated, selling services to all the telco providers. It's going to be a very stable business," he said.

However, IDC analyst Rosalie Nelson said Chorus would grapple with a number of challenges and still face competition from copper and mobile broadband networks.

"It's not only whether [internet providers] get people to go mobile only and cut the cord within their homes... but also whether you see people saying 'we're happy with our copper connection in our house and what we'd prefer to invest in is mobile broadband because of its flexibility'," she said.

Both Chorus and Telecom will be on the NZX 50 after the split.

Telecom, currently the biggest company on the NZX, would have a market capitalisation of $3.2 to $3.3 billion after the demerger, said Hallwright.

Chorus would have a value of around $1.9 billion and its shares could be worth up to $5 when it lists, he said.

Stockholders will get one Chorus share for every five Telecom shares.

Once the demerger is completed, Telecom's share price could fall to around $1.60, Hallwright said.

According to a report by consultancy firm Grant Samuel, Chorus could have a trading range of $2.92 to $4.61. New Telecom shares could be priced between $1.73 and $2.33.

The report took Chorus' projected earnings before interest, tax, depreciation and amortisation (ebitda) for the 2011/12 year and then used trading multiples from New Zealand and Australian infrastructure companies to predict the share value.

Telecom shares closed at $2.45 on Friday, down 6c.

Chorus will appear on the Australian stock exchange from today.

Trading will begin on both exchanges on a deferred settlement basis with normal trading commencing on Friday on the NZX and December 1 on the ASX.