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Telstra shares hit new $2.58 low
Lucy Battersby
November 17, 2010

TELSTRA shares closed at a record low of $2.58 yesterday as politicians debated new laws to structurally separate the company and bring to life a deal worth $11 billion to it.

Getting the separation into law would also provide regulatory certainty, remove Telstra's responsibility to provide a telephone service to every Australian, and allow it to present long-suffering shareholders with a final deal to participate in the national broadband network early next year.

However, the final shape of the legislation, and its passage, is still uncertain.
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Also dragging on the share price is the Future Fund's sell-off of Telstra shares on the open market - as many as 1 billion shares depending on how its portfolio is allocated.

Late last month the fund disclosed ownership of 1.22 billion shares in the telecommunications giant, which represented between 4 and 5 per cent of its portfolio.

This was ''too great an exposure to a single security'', the fund's 2009-10 annual report said, and it aims to gradually reduce its stake.

If the Future Fund's board wants its $7.6 billion Australian equities allocation to reflect the S&P/ASX 200 Index - of which Telstra accounts for 2.6 per cent - it could be expected to sell more than 1 billion shares to lower its holding to about 76 million, depending on the share price.

Daily turnover of Telstra shares remains high. The fund claims its sales make up just 14 per cent of daily trading, but with such a large seller in the market, the share price is struggling.

This Friday's general meeting will be the first opportunity for shareholders to speak to Telstra executives since the company warned that revenue would decline by up to 9 per cent this year and announced a $1 billion rejuvenation program called Project New. Since then its shares have fallen 22 per cent.

Negotiations are taking place between NBN Co and Telstra to pay $9 billion in cash for transferring customers from Telstra's copper telephone network and to share underground pipe networks.

Uncertainty over timing means Telstra cannot say when, or if, shareholders will get a special dividend from the deal. Executives confirmed in September that Telstra could afford its generous 28?-a-share annual dividend, but ratings agency Moody's warned recently that if revenue did not improve, dividends might be cut.

Analysts at UBS believe Telstra will maintain the dividend and are even forecasting a 1? increase in 2013, and a target price of $4 a share.

''At current prices, the market is applying zero value to Telstra's retail fixed-line voice, access and broadband business ($8.4 billion in revenue) if Telstra finalises its $11 billion NBN deal,'' analyst Richard Eary wrote. He believes revenue will start rising in early 2012, providing Project New is successful.