telstra strategy open to question, page-9

I need to re-do the valuation. It is now complicated because it is driven by 4 things:

1. Telstra's organic operating performance (which should be the whole story but is not)

2. The difference between the $11bn post tax NPV at 10% discount rate and the actual NBN cashflows valued at the risk free rate (because they are contracted by a AAA rated entity and I say the appropriate way of handling termination risk is via real option pricing). In any case I would be highly surprised if the $11bn number was inflated to less than $20bn of value! [Note also $11bn post tax valuation there is really $15.7bn to the shares -which are pre-tax securities.

3. A Liberal Party NBN version where NBN Co gets acquired by Telstra Wholesale and then gets paid something like $6b to $10bn to do FTTN. (and keeps all of the cashflow from its assets).

4. The option analysis between the Liberal and ALP winning the next election. [This is the appropriate way of capturing the risk of the NBN not proceeding] rather than using WACC. There I just use the Centebet election odds as a multiplier between scenario A and B.

I would bet testicles that the valuation will come out in excess of $4.00 per share. The only major events between my last c$4.50 valuation and now is, the realisation that Telstra would be paid between $20bn and $35bn (guesstimate) from NBN Co (when you unpack the cashflows of the $11bn NPV deal) and if the NBN failed the Liberal party would pay Telstra upwards of $10bn to do FTTN. So its all upside really.