Telstra: pain for gain says Fat Prophets

Stan Beer
Thursday, 17 November 2005 10:00

IT Industry - Strategy

Bucking the tide of a growing consensus that Telstra's prospects look bleak, financial markets analyst firm Fat Prophets predicts a bright future for the carrier if management can succeed in delivering on its vision.

In a statement released yesterday as a precursor to a full blown analysis of Telstra's strategy to be released next week, Fat Prophets said, "After viewing the presentations, we get a sense that Telstra has a capable and passionate leader in Trujillo, and while the task of re-engineering the company will be a mammoth one, success on this front will see Telstra become a world telecommunications leader.

"Earnings before interest and tax (EBIT) are expected to fall between 25 and 30 percent this financial year, as a result of redundancy payments and ongoing deterioration of the high margin, fixed line business.

"It was this lowered earnings guidance that saw investors react today by pushing the share price down towards $4. However, with the normal dividend still intact, in our opinion the stock should find support around these levels.

"While we acknowledge that Telstra has some short term earnings concerns, we are firmly of the belief that the company's long term prospects are bright.

"Management clearly outlined their plan for the future and should they successfully deliver, we believe patient shareholders will be well rewarded."