KEY POINTS:
A new chief executive could mean a drop in Telecom's returns as the new broom tries to transform the company, an analyst says.
Observers have delivered their verdicts on Telecom after the resignation of chief executive Theresa Gattung.
She announced her resignation on Friday as Telecom reported an adjusted net profit of $461 million, up from $395 million for the six months ending December 31.
Patrick Russel of Merrill Lynch in Australia said the result was below its estimates. It dropped its valuation by 1 to 2 per cent to $3.94 a share.
Russel said a new chief executive might aggressively transform the company - like Telstra did in Australia - and boost capital spending on more fibre networks and new IT systems. This would cut into company returns.
Telecom's broadband and internet revenues were weak, Russel said.
Broadband revenue was up 4 per cent to $71 million and dial-up internet down 33.3 per cent to $12 million. Data revenues were $102 million, down 9 per cent.
"These [revenue] trends are likely to get worse as the impact of tougher regulation starts to bite later this year and into 2008 especially," said Russel.
Goldman Sachs JB Were analyst Andrew White slashed its valuation to $3.95.
Earnings before interest, tax and amortisation (ebitda) was $514 million, lower than the market consensus of between $514 million and $548 million.
White believed the market was ignoring significant risks to Telecom.
The company would continue to be exposed to rapidly changing regulation, potential new mobile competitors and increasing competitive pressures from established rivals, he said.
Gattung said on Friday that she was excited and proud of Telecom's mobile revenue growth of 9 per cent to $211 million, and net growth in mobile connections of 100,000.
Telecom's mobile growth surprised and encouraged ABN Amro analyst Ian Martin, who boosted its valuation 5 per cent to $4.25.
But Martin said overall, Telecom delivered a poor result with group operational expenditure growing at three times the rate of group revenue.
It is possible that the poor result motivated Telecom to make its proposed A$357 million bid for PowerTel.
If Telecom acquired PowerTel, it would add to ebitda over the next few years, said Martin.
Deutsche Bank analyst Sameer Chopra said it had kept its target price of $4.75.
Telecom is considering bids for its Yellow Pages directories, with the prospect of a higher than expected sale price, so the company has maintained its recommendation to hold shares.
But Telecom faced competitive dangers with Vodafone's entry as a fixed-line company, through the purchase of ihug last year, and the prospect of a third mobile player in the market.
Telecom shares yesterday closed down 5c to $4.80.
Verdicts
* ABN Amro: $4.05 up to $4.25 (target price) - SELL
* Goldman Sachs JB Were: $4.08 down to $3.95 (valuation) - SELL
* Deutsche Bank: $4.75 no change (12-month target price) - HOLD
* Merrill Lynch: $3.98 down to $3.94 (valuation) - SELL
