Credit Suisse downgrades Telecom to 'neutral'

Market analysts Credit Suisse First Boston have downgraded their recommendation on Telecom from "Outperform" to "Neutral", saying it expected profits to fall in the face of slower growth in mobile earnings and further pressure on its Australian business.

Telecom reports its second-quarter net profit on Thursday. It said last week it expected reduced earnings from its Australian subsidiary AAPT, the carrying value of which it cut by around half to between A$600 million ($665.7 million) to A$700 million .

Credit Suisse is forecasting a second-quarter net profit of $207 million compared with a median forecast of $188 million in a Reuters survey of four analysts.

The bank said Telecom's aggressive push in the mobile and broadband sectors had constrained operating earnings.

"This investment, coupled with AAPT's earnings pressures, we view, are likely to place further downward pressure on the stock in the short term," Credit Suisse analysts said.

Telecom is currently reviewing the future of AAPT, including whether it should sell the business.

Credit Suisse also cut its forecast for Telecom's full year net profit for 2006 by 5.6 per cent to $849 million, and for fiscal year 2007 by 7 per cent to $886 million.

It lowered its 12-month target share price for Telecom to $6.04 from $6.75. Telecom shares last traded 0.35 per cent lower at $5.68.

"We prefer Telstra for the significant opportunity, which we believe will drive a turnaround in consensus earnings."

Telstra is the dominant Australian phone company and operates in New Zealand under the Telstra Clear banner.

- REUTERS