XT woes starting to hurt shares

More bad press over Telecom's calamity-prone XT network saw the telco giant's stocks take a hit yesterday, with its share price dropping 6c after the resignation of its chief technical officer.

Telecom's share price sat just above the $2.40 mark before the first major network crash on January 27, and closed at $2.30 last night.

Craigs Investment Partners head of research Mark Lister said yesterday's plunge might have been a kneejerk reaction to more bad news, or could have a deeper meaning - indicating some shareholders no longer wanted to be involved with Telecom stock.

But he said Telecom investors were accustomed to receiving bad news about the company, and this had helped to shield the share price from taking an extreme dive.

"It would be a surprise if you heard it from a company that had been on a slightly more positive path to begin with, but [Telecom] hasn't been, unfortunately," he said.

Lister said Telecom's higher-than-average dividend yield - about 10 per cent - had helped to keep the stock afloat.

While Telecom was receiving a lot of negative media coverage, none of it was particularly pertinent to how the problems were affecting day-to-day cashflow, he said.

"If it turns out that there are fundamental problems with the network, and they are going to have to spend x amount of money to get the problem sorted out, then that will be something the market can actually put a financial handle on."

Grant Williamson, director of stockbrokers Hamilton Hindin Greene, said Telecom's share price was "depressed" even before the network failures. "Investors are still only thinking that it's a short-term issue, and will be sorted out eventually," he said.

"Investors might not have taken into account the reputation damage that may come from this."

Williamson said some small-scale investors might have decided to "hop out" and sell their Telecom shares, but institutional investors were holding off to see what eventuated.

Institutions would look at the fundamentals of the company in the medium to short term, he said.

"If [the institutions] decided to hop out, then we would see a reasonable correction in the share price." Improvement was unlikely in Telecom's share price in the near term, Williamson said.

Forsyth Barr analyst Guy Hallwright said movement of Telecom's share price over the past few weeks had been pretty similar to the rest of the NZX.

"[The network failure] doesn't seem to have spooked private client investors too much. They are still getting decent yield so I doubt whether they are going to react and start selling stock on what are obviously problems that are going to be overcome."

Williamson said the failure of the XT network was not an issue of small significance for shareholders.

"XT is one of their growth areas and therefore it is of some concern."