so nbn is good for tls?, page-11

Good article outlining some things to come in the future 6 months or so:

http://www.theaustralian.com.au/business/investors-call-on-telstra-to-consider-a-buyback/story-e6frg8zx-1225962389926

Investors call on Telstra to consider a buyback

INVESTORS in Telstra are calling for the group to consider a share buyback as the best way to realise value.
With greater certainty that Telstra will receive early cash payments from the deal brokered with NBN Co and the yield on its share price hitting record highs, fund managers and analysts are focusing on a more immediate return.

Last Friday, legislation designed to separate Telstra's retail and wholesale arms passed through the Senate, removing one of the biggest obstacles to the telco claiming its $13.8 billion bounty to transfer its monopoly to the NBN Co.

The increasing likelihood of Telstra receiving its compensation payment has prompted renewed calls for the telco giant to increase the value of its shares by instigating a stock buyback.

Telstra has signalled its intention to investigate a buyback once it has finalised its deal with the NBN.

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While many of its retail shareholders back such a proposal, the telco has contended that its institutional investors are not so convinced.

"In terms of doing a large buyback, our institutional shareholders have indicated that to borrow to do a buyback is not something that they would be comfortable with and if we were to do a large buyback, that would be something we would have to do," Telstra chairman Catherine Livingstone said at the AGM.

However, now that Telstra's compensation payment is on track for completion by the middle of next year, some institutional investors are starting to warm to the prospect.

Major institutional investors such as Investors Mutual have already raised the issue with Telstra and it is understood that a number of other institutional investors and investment banks have also spoken to the telco giant.

"I think that when your stock is yielding at 10 per cent, then it's cheaper to buy back stock and borrow than to pay the dividends on that stock. Telstra paid down $1.7bn in debt last year so they have the balance sheet capacity," said Investors Mutual director Anton Tagliaferro. "I think the company should definitely be looking at it as a matter of urgency with or without the NBN."

Morgan Stanley analyst Mark Blackwell said: "The release of the NBN business case and the passage of NBN-enabling legislation support a mid-2011 timetable for a final deal between Telstra and NBN Co.

"This deal should stabilise Telstra's fixed line future and make a buyback more likely.

"This is the first of three potential events, each due to occur around the middle of 2011, that could tighten the supply of Telstra stock. The remaining two -- the end of the Future Fund's sell-down and the related upweight of Telstra in the local index -- appear to be on track also. This situation provides fertile ground . . . for Telstra to trade up to our $3.50 price target."

UBS analyst Richard Eary said Telstra's free cashflow of about $4.3bn would easily cover the $3.5bn needed to cover the 28c a share dividend.

He said that a $2bn buyback would be 4 per cent accretive in 2012.