Tech Sector Relief | Telstra Restructure

23 March 2021

Global markets were mostly higher overnight  (S&P 500 index +0.7%) as technology stocks rebounded from a recent selloff sparked by surging bond yields. 

An easing off from 14-month highs in the 10-year US Treasury note yield after hitting 1.75% last week has allowed technology shares to bounce back. Growth stocks rose more than 1.43% while value shares slid -0.07% in a reversal of this year’s big rotation in investment portfolios.

Tesla jumped +6.6% after a prominent fund manager predicted the stock price could reach $3,000 in 3 years, while the rest of the major tech players were up over +2% for the day.

Telstra (TLS:ASX)

Telstra (TLS) shares were up +1.3% yesterday after the company reporting it expects its proposed legal restructure splitting the company into four divisions, expected to be completed by this December.

As part of that plan, InfraCo Fixed would own and operate Australia’s biggest telco’s ducts, fibre, data centres, and exchanges. InfraCo Towers would own and operate Telstra’s passive or physical mobile tower assets. And ServeCo would own the radio access network and spectrum assets.

The telco said it plans to establish its international business “under a separate subsidiary within the Telstra Group to keep that part of the business, including subsea cables, together as one entity”. The international assets will be transferred to the new subsidiary over time, subject to relevant approvals and engagement with appropriate stakeholders. The company plans to seek shareholder approval of its proposed schemes in October at this year’s annual general meeting (AGM).

We continue to remain BUY rated on Telstra and we think the split of assets makes sense as the valuable infrastructure components can trade at higher valuations separately. At the same time, TLS shares continue to offer a very attractive dividend yield for income seeking investors. 


Australia & New Zealand Market Movers

The Australian market (ASX 200 index +0.7%) closed higher on Monday, ending its three-day losing streak driven by gains for energy being the best performing sector, followed by utility companies.

Crown was the major highlight storming up +21% reacting to Blackstone, the US private equity's $8 billion take over offer ($11.85 per share), investors pushing the price e up expecting a higher takeover price.  Miners were weaker after further details emerged about pollution crackdown in the Chinese city of Tangshan, a hub for steel production. 

The New Zealand market slumped yesterday (NZX 50 index -1.5%) as volatile electricity stocks continue to experience heavy swings.

Renewable energy stocks led the index’s sharp decline, Meridian Energy falling -6.3% and Contact energy down -4.5% after Dow Jones is reviewing a clean energy index, that includes Contact and Meridian. The latest consultation document suggests changing the criteria to add 70 stocks to the existing 30 in the index – which involves the fund selling off a large chunk of their Contact and Meridian shares that were bought in January (which caused its major spike in price).

Travel stocks had little reaction to the news the government would announce the date of a trans-Tasman travel bubble in April – as investors grew skeptical about a concrete announcement. Auckland International Airport fell -0.3% despite being expected to be one of the biggest beneficiaries of the bubble, and Air New Zealand dropped -2.2%.


3 Things Markets will be Watching this Week

  1. COVID related new-flow and vaccines remains a key driver for markets
  2. Highlights this week include 4th quarter economic growth (GDP) being released in the US.
  3. Locally, it will be a big week for the retail sector in NZ with Kathmandu, Hallenstein Glasson and Warehouse Group all reporting earnings.


Tesla jumped +6.6% after a prominent fund manager predicted the stock price could reach $3,000 in 3 years, while the rest of the major tech players were up over +2% for the day.

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