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Financial Happenings Blog
Monday, October 09 2006

The T3 Float is up and running. 

The prospectus is out (just - apparently the friction between the Government and the Telstra board nearly got in the way of it). 

I listened to Roger Montgomery, of Clime Asset Management make some really valid comments on an ABC TV interview.  His first comment was that this is a company already listed and trading - if you want to own in you can simply buy it on the market.  In fact, even with a 10 cent discount for retail investors and, say, another 10 cent discount because of buying into the float then the price of the shares based on todays price of $3.70 will be $3.50.  Telstra shares were trading for less than this 3 weeks ago.  He also made the comment that this is hardy a company without problems.  The friction with both the Government and regulators part of the problem, as well as a competitive marketplace.

You can get a copy of the prospectus here.  You will notice on the front page a lot of people smiling.  I guess that these are either people who did not buy into Telstra 2, or investment bankers who are about to share in the big pile of fees generated from the Telstra 3 float.

The 14% dividend yield is emphasised in the prospectus.  It reminds me of another float some years ago where the dividend yield was emphasised - the Australian Magnesium Corporation float.  The Government propped up a dividend that was meant to look like the company had solid and reliable earnings, when it was really a start up company, and the company more or less collapsed.  The Telstra dividend is not currently covered by company earnings, it has a bit of the 'phantom dividend' nature about it.

So, should you buy into the float?  Remember that you are becoming part owner of a company if you buy the Telstra shares.  The company is still squabbling with its biggest owners, the Government, and with the regulator.  This can't be good for business.

My thoughts: don't get carried away with the excitement of the float.  You can buy Telstra shares today, tommorrow and into the future.  In fact, if you weren't buying shares at $3.30 a couple of weeks ago, I am not sure why you would buy now?  Most of all, you need to come to an opinion about whether the company can return to profit growth.  If you think it can, then it is probably a reasonable buy.  If you don't think it can, then keep your money for other opportunities.

Posted by: Scott Francis AT 07:55 pm   |  Permalink   |  Email
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