Rally Takes a Breather | Telstra Jumps on Break-Up

16 November 2020

Global markets slipped overnight (S&P 500 Index -1.0%) as the post election / Pfizer vaccine rally took a breather and as US coronavirus infections surged with investors weighing the timeline of the mass roll-out of an effective vaccine.

The Trump administration has also reportedly stepped back from talks on a new stimulus package, leaving it up to Congress to revive negotiations with House Speaker Nancy Pelosi. We think a US fiscal stimulus deal this year is very unlikely.


Telstra (TLS:NZX / TLS:ASX)
Shares in Telstra jumped yesterday after the company announced a major restructure that would split its business into three separate legal entities.
It comes amid speculation the telco is preparing for a bid to take over the National Broadband Network, and pre-empting any concerns that will be raised by the Australian Competition and Consumer Commission (ACCC).

The company plans to split itself into these divisions by December 2021:
InfraCo Fixed: which will look after fixed line assets like ducts, fibre, data centres, subsea cables and exchanges,
InfraCo Towers: mobile towers, which it plans to "monetise over time",
ServeCo: the radio access network and spectrum assets.

"The proposed restructure is one of the most significant in Telstra's history and the largest corporate change since privatisation," said Telstra chief executive Andy Penn. "It will unlock value in the company, improve the returns from the company’s assets and create further optionality for the future."

Telstra said, with "the NBN rollout effectively complete", that it expects to earn (before interest, tax and depreciation) $7.5 million to $8.5 billion by the end of the 2022-23 financial year. While Telstra dominates Australia's mobile and broadband markets, its mainstay fixed-line business has also been under pressure from the rollout of a state-owned NBN.

We currently have a BUY rating on Telstra and will release a full update in our weekly report.


Australia & New Zealand Market Movers

The Australian market snapped its 5-day winning streak yesterday (ASX 200 Index -0.5%) as the euphoria over COVID-19 vaccines finally ran out of steam.

In stock news, Nine's share price rose after the network said it expected first-half earnings to lift sharply (+30%) due to a rebound in advertising markets. Wesfarmers shares lifted after the conglomerate provided an upbeat trading update.​ ​The company revealed its online sales boomed as consumers were forced to change their shopping habits amid the pandemic.​ ​Its retail businesses Bunnings, Kmart, Target and Officeworks saw their online sales jump 166%  in the first 10 months of the year.
Graincorp shares initially surged, after the company confirmed it would start paying dividends again. That was after the company said it swung to a full-year profit of $343.3 million in the 2019-20 financial year (compared to a $113m annual loss the previous year).
Shares in Xero were flat as it reported impressive revenue and earnings growth, but a slow down in subscriber growth.

The New Zealand market was more or less flat on Thursday (NZX 50 Index +0.04%) as stock prices found a new level after a barrage of market moving news over the past 10 days.

Stock market operator NZX led the market higher, climbing 5% back to its record price, followed by Sky Network Television which jumped 5% as it continued to rally on upgraded guidance. On the other end of the board, Vista Group International dropped -4% in the day’s biggest fall as it gave back some of its vaccine bounce.
It wasn’t alone as the sugar rush of vaccine news began to wear off and hit travel stocks as well such as Air New Zealand, Tourism Holdings and Auckland International Airport. 

In stock news, Sanford declined -3% after it said it will not pay a final dividend following net profits tumbling by almost half to $22.4 million. Infratl shares were  more or less flat as it released its first half earnings with few surprises given recent company updates.


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​An early focus naturally will be on the strength of Trump’s lawsuits – and whether these threaten to rekindle election uncertainty.
  2. Locally, the week ahead is dominated by the RBNZ’s OCR review on Wednesday.
  3. ​​​​​​​​​Second wave COVID-19 news is back at the top of headlines with social distancing measures re-introduced across Europe.


Shares in Telstra jumped yesterday after the company announced a major restructure that would split its business into three separate legal entities.

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