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Could Abbott cruel the Telstra deal?

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by Peter Switzer

It was great news to see Telstra spike up 3.4 per cent yesterday, however, in the early part of the day the stock was up over seven per cent. But this was a day when the overall market was up about 1.3 per cent and even Fortescue Metals put on 4.58 per cent.

The kick up for miners was linked to the Chinese saying they were happy for the yuan or RMB to appreciate, which would be good for our exporters to China. It also helped the dollar go up.

Telstra rise

All that aside, it was a nice rise for Telstra and if anyone took the tip from Julia Lee from Bell Direct on my show on Sky News Business Channel when the stock was at $2.92 you would have snagged yourself a nice profit.

On the subject of the magnitude of the gain, Joe Hockey last night said on my show ASIC has been alerted to Telstra’s share price rise over the past week and so, who knows, there could be some insider trader allegations thrown around soon.

Those earlier rises could have taken some of the heat out of the rise yesterday, which was 11 cents to $3.34.

By the way, these rises could disappear as well, though many brokers have Telstra on a buy at levels higher than $3.50 at the moment and some are a lot higher than this price target! More on this later.

Still a gamble

Also on my show last night was David Tudehope who is the CEO of a Telstra rival — Macquarie Telecom — who was happy with the deal, despite Telstra being handed, potentially, $11 billion. He said it will be great for his business and other businesses that will leverage off greater broadband capability, and even Telstra might become a better business as making money won’t be as easy as it has been in the past.

History has shown that a threat today is an opportunity tomorrow and so if you’re wondering if Telstra is a buy, hold or sell, as with most investments, it remains a gamble.

Martin Lakos on SWITZER last night said the $11 billion will help to sustain the great dividend that Telstra pays and this, to me, makes it a hold at worst. If you don’t like risk, you would probably look for a safer and good dividend payer right now but Telstra still looks interesting for thrill seekers who think the NBN-world could actually be good for the biggest player in the market.

Election issue

Now for the hurdles ahead.

The deal has to be approved by Telstra shareholders, who should say yes and they would have to be on medication to vote any other way.

Then there is the ACCC, who I suspect will give it the nod but you can never be too complacent about Graeme Samuel.

Finally, there’s the Senate and it will be the one that results after the election, as this deal will not be signed, sealed and delivered before polling day.

So, this becomes an election issue and the Opposition does not support an NBN! An NBN without Telstra’s input was always going to be dearer and was one big reason for the Opposition’s position on the big telco idea.

This Telstra share price could be a new battleground for the political parties and Telstra shareholders and what happens to the share price could become an issue akin to the resource tax, which has created very cranky shareholders/voters.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, June 22, 2010