Telecom plunges - and pays up $940 million wiped off value of shares

By PAUL PANCKHURST

Telecom shares plunged 9.6 per cent - or $940 million - in a bleak day for the New Zealand market.

Yesterday's fall came after the company announced its first-quarter profit would not meet analysts' expectations.

Telecom - and the troubled Tower - dragged down the market, with the NZSE-40 capital index falling 60 points to 1975.

"It's a horrible day," said one analyst. "It's a sea of red."

The fall was the biggest single-day drop for Telecom since December 1997.

Brokers and analysts said Telecom faced a market that was punishing stocks severely for bad news.

Telecom spokesman John Goulter said the company discovered analysts' forecasts were out of line when a JBWere report forecast first-quarter earnings of $173 million.

He said Telecom received that report last Tuesday.

Informal feedback showed other analysts were also forecasting higher than Telecom's expectation of $145 million to $150 million.

One market source said staff within JBWere were astounded by the announcement when Telecom had seen the report before publication - and when the first quarter was long gone, having ended more than five weeks ago.

A gap in expectations was "a little surprising this late in the game".

The reason for the gap is not clear.

Telecom's Goulter alluded to "seasonal" factors without naming them or explaining why analysts would not be aware of them.

He said Telecom would not go into more detail until next Tuesday's release of the quarterly results.

The company said it had "strong operating cash flows" and the result "would represent an underlying increase of 7.4 per cent to 11.1 per cent over the first quarter for 2001, adjusted for cross-border lease gains, capacity sales and amortisation of goodwill".

Earnings for the quarter will be down, however, on last year's $151 million for the same period.



The company said its full-year profit was expected to be within analysts' estimates, which ranged from $676 million to $760 million.

Brokers said yesterday's heavy volume - more than 20 million shares - could have partly been driven by investors who bought into the company at $4.50 a share when American telco Verizon sold its cornerstone stake in September.

Selling now, those investors reaped currency gains on top of the share price. Telecom closed yesterday at $4.72, down 50c.

"It's not a disaster, by any means," said Richard Leggat, the director of research for UBS Warburg. "This market is very harsh on companies that fail to live up to expectations."