Praise for Telecom as yield chasers quit

By RICHARD BRADDELL

Telecom's share price yesterday tested two-year lows as investors got to grips with their surprise at the company's decision to trim dividends by as much as half in the coming year.

But the stock recovered from a 685c low to close at 715c yesterday - 5c down.

On Tuesday, Telecom had reported a 6 per cent drop in annual profit and its intention to cut future dividends.

While Telecom has consequently fallen into some disfavour, fund managers see that as temporary and reflecting a hiatus between the exit of yield investors and the arrival of those who like the look of Telecom's growth story.

Telecom's move to mop up the minorities in Australian subsidiary AAPT was regarded as a vital precursor to exploiting options, including wider partnerships for transtasman activities.

AMP Asset Management's New Zealand equities manager, Stephen Walker, said the $A444 million ($572 million) price tag for the AAPT minorities would not make much difference to Telecom, while the benefits that could be unlocked dwarfed the costs.

"I think it's a good move and it's struck at a price which should ensure success."

But Simon Botherway, of Arcus Investment Managers, was puzzled at the great welcome accorded the Telecom bid by AAPT's independent directors, particularly since the A725c-a-share offer has yet to be reviewed by independent adviser Grant Samuel.

"When I take into account the benefits that Telecom is likely to achieve, something with an eight in front of it is more appropriate."