Friday, December 22, 2006

Telstra news not so great

Telstra has had some bad news lately. A class suit action against them for 300 million and a very poor outlook for its TelstraClear business in New Zealand. Both articles are below :

Telstra's disclosure practices are under scrutiny as it prepares to mount its defence against a class action lawsuit. Slater & Gordon is seeking about $A300m in damages for over 200 of the telco's shareholders. The case centres on Telstra's alleged failure to fully inform the Australian sharemarket and investors about a fall in earnings. According to the claimants, Telstra informed the market of an expected downturn in earnings on 7 September 2006, but had briefed Prime Minister John Howard on the issue several weeks earlier. Telstra's shares fell by nearly 10 per cent between the two dates. Telstra's general counsel describes the case as a "misunderstanding of the facts".

Internal emails have leaked from Australian telco Telstra that indicate a growing rift over its New Zealand (NZ) subsidiary TelstraClear. The latter's CEO, Allan Freeth, claims in the message that the parent company is failing to make the necessary investments in the business at a time when it should be taking advantage of a newly-deregulated telco environment in NZ. Freeth predicts that TelstraClear will make a loss of $NZ7m ($A6.2m), down from a profit of $NZ15m, as it rapidly loses customers. He was appointed as CEO in April 2005 and has recently clashed with chair David Thodey as well as with Telstra CEO Sol Trujillo.

This comes at a time when the share price of Australian telco Telstra Limited has recovered to reach levels not seen for about a year. The telco sector is experiencing a turnaround and T3 had a high demand which has caused the instalment receipts to be trading at very healthy prices since the float.

The Long term prospects of Telstra are still unclear to me and it is a company I will stay away from in the near future. I don't trust management or the government and there is a lot of uncertainity of the possible dividends in the future. To me the risk is too high for such a mediocre share that is heavily traded by institutions.

Good Luck investing.

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