Telecom solid prospect after selldown

By ELLEN READ and AGENCIES

Telecom should outperform the Stock Exchange's main top-40 index following last week's selldown by US telco giant Verizon.

A research report from Macquarie Equities says investors should take advantage of the post-selldown liquidity to move to an overweight position in Telecom shares.

Verizon sold most of its 20.9 per cent stake last week to Merrill Lynch, Pierce, Fenner & Smith for about $4.35 a share. Merrill onsold the 370 million shares quickly to global institutions at $4.50 a share.

Macquarie values Telecom at $6.48 a share because of its high opinion of the company's Australian businesses.

Telecom shares closed yesterday at $4.95.

"If the market were to recognise our valuation of the Australian business, this would add 80c to 90c to the stock price," Macquarie said.

It said the prospect of Verizon's selldown had overshadowed Telecom's fundamental value for some months, and it would outperform the index of leading New Zealand shares in both the short and long term.

"At the current share price, Telecom's New Zealand businesses are priced at a substantial discount to fair value and the Australian businesses are being valued by the market at nil value," Macquarie said.

Verizon said it had received about US$770 million ($1643 million) from the Telecom sale, money it would use to reduce debt.

The company, through its Bell Atlantic Holdings subsidiary, held about 20.9 per cent of Telecom New Zealand's shares. It now holds a 1 per cent stake.

Verizon's international president Daniel Petri said the selldown presented a good opportunity in view of the company's evaluation of its international assets and plan to reduce corporate debt.