Big Telstra Payout On The Cards
Sydney Morning Herald
Thursday April 29, 2004
One way to keep investors happy is to throw money at them instead of at clever salesmen.
Telstra's head number cruncher, John Stanhope, added further support to the prospect of a capital return, stating at an ABN Amro talk-fest yesterday that ``there's no acquisitions in the pipeline right now both domestically or offshore".
Telstra has put a cash return to shareholders ahead of acquisitions after spending a billion dollars on recent acquisitions.
Telstra's acquisition binge is expected to get a tweak by the board at a strategic review of the company to be held this Monday. The company stressed that the meeting is just a regular review and has nothing to do with chairman Bob Mansfield's departure.
The focus for Telstra's 1.8 million shareholders will be on the cash though. Mr Stanhope said that while a capital return was ``highly likely", it was a matter for the board to decide.
According to Macquarie Equities, this leaves the phone giant with room for $2 billion worth of capital returns without affecting its debt ratings.
Stanhope indicated that Telstra would not quietly accept Labour's policy of forcing the divestment of Telstra's stake in Foxtel. He admitted that Labour, if in power, could ``legislate to force it" but he added the unravelling of the contractual arrangements between Telstra and Foxtel was ``open to question".
Hearing difficulties
The third profit warning this financial year from Cochlear has left the market wondering just how low can it go. The stock was down another 7c to $18.83, quite a way from its $52 peak reached a couple of years ago.
JP Morgan's Sean Laaman said the concerns with the group related mainly to the ear implant market in the US, where hospitals are losing between $US2,000 ($2,700) and $US10,000 a year on these procedures. Laaman also wonders whether the company has ``picked the low hanging fruit" in terms of targeting younger recipients where the payer was the parent.
The unknowns surrounding the current Department of Justice investigation into Cochlear's commercial relationships with doctors in the US is adding further pressure.
``We expect the uncertainty surrounding the investigation to be an overhang in the short term," said UBS. ``We believe the investigation is having an impact on the US business, the extent of which is not yet quantifiable."
Laaman sums up the current market mood succinctly.
``We must remain cognisant that, on the surface, the planets have aligned to knock the stuffing out of Cochlear," he said.
Boral waiting game
Rumours are strengthening that the ACCC decision on Boral's takeover of Adelaide Brighton is due any day. The prolonged deliberations on the $1.60 bid have created some uncertainty.
Brokers were speculating yesterday that if the deal were rejected it could trigger a 13 per cent fall in Adelaide's share price and a 4 per cent fall in Boral's. The ACCC is said to have indicated that it would not permit such a tie-up in such a tight-knit industry. But the fact the deliberations have gone on so long is being seen as a positive sign.
Boral fell 8c to $6.16 yesterday, while AdBri slipped 2c to $8.19.
ResMed's caught cold
ResMed isn't faring too brilliantly despite its record third quarter numbers released on Tuesday.
While a 40 per cent increase in sales of its masks in the US was certainly impressive, management's indication of a 3 to 5 per cent decline in average sales price outside America didn't please analysts.
One cut earnings forecasts for 2004-05 by 4.2 per cent due to slower revenue in Europe and a minor contraction of gross margins. Fiscal 2006 earnings estimates have been reduced by 5 per cent for the same reasons.
The stock firmed 4c to $6.68
Unimpressed by ION
The market's relief that ION was back on track following the gearbox company's update on Tuesday proved short-lived, the stock falling 13c to $1.51 and wiping out some of the previous session's 19c gain.
Upsetting the apple cart were a couple of broker reports pointing out that the company really hadn't said anything all that new in its update and concerns remained about contracts up for renewal in 2008.
ION said contracts to supply Ford Australia with its four-speed automotive transmissions were firm and it was well placed to retain them post 2008.
Goldman Sachs JBWere seems to disagree, saying the market's belief that the Ford Australia contract had been retained (hence the 13 per cent share price rise) was misplaced.
``We do not believe the company's statement provides confirmation that the future of this contract is 100 per cent secure," analyst Nga Luu said.
``We understand that ION has not received any indication from Ford Australia that suggests they will retain their contract in the event Ford moves to six-speed transmissions.
``We think a partial contract loss to be more probable."
ION is developing five and six speed transmissions but the analyst doesn't think it is suitable for Ford models.
The concerns of JP Morgan's Michael Willoughby are more general.
``There was no news on our chief concern, the longevity of the transmissions contracts.We are increasingly of the view that ION so small and under-resourced simply cannot compete in the long term," the analyst said.
© 2004 Sydney Morning Herald