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16-12-2014, 08:00 AM
Telstra shares fly high on $11.2bn NBN deal
THE AUSTRALIAN DECEMBER 16, 2014 12:00AM
Mitchell Bingemann
Reporter
Sydney
TELSTRA’S reworked $11.2 billion deal to participate in the National Broadband Network has helped the telco giant’s shares defy a market sell-off precipitated by government revelations that the budget deficit would blow out to $40.4bn.
Shares in Telstra jumped 0.7 per cent to $5.74 yesterday in a falling market that shed 0.64 per cent as the government unveiled its update for its mid-year economic outlook.
The jump in Telstra shares came as analysts and investors cheered Telstra’s reworked NBN deal, saying it would protect shareholder value and secure the company’s role in the mammoth infrastructure project.
“We welcome the new deal as it secures their cash payments schedule under NBN and avoids material cost obligations in the future,” said Citi analyst Justin Diddams. “That said, there’s limited change to our core Telstra valuation but it does remove an overhang.”
Telstra signed its revised agreement with NBN Co over the weekend. The $11.2bn net present value deal will see the ownership of Telstra’s copper and pay-TV hybrid fibre-coaxial (HFC) networks transferred to NBN Co.
Those assets will be used to construct the Coalition’s “multi-technology” NBN, which will use Telstra’s copper network to connect homes instead of Labor’s approach, which involved laying fibre-optic cables direct to premises.
According to calculations from Mr Diddams, the revised deal will see Telstra receive a cash windfall of about $18bn from NBN Co over the next eight years. Those payments will cover disconnections, infrastructure leases and policy changes that will benefit Telstra.
In total, Mr Diddams said the deal was worth about $1.30 per share of value to Telstra.
“We welcome the payments, providing a platform for reinvestment and/or increased shareholder returns,” he said.
“However, we view them as already priced into market expectations, (and) as such retain our neutral rating.”
There could be additional value handed to Telstra if the telco decides to tender for work from NBN Co to remediate the copper network and build portions of the project around the nation.
As NBN Co progressively takes control of Telstra’s copper network for its fibre-to-the-node system, the company will also take on responsibility for maintaining Telstra’s century-old copper network.
NBN Co has not yet determined the cost for maintaining the copper network, but it is understood the company is looking at options to outsource the work.
Mr Diddams said the transfer of remediation work to NBN Co as well as the reduced complexity of processing payments to Telstra would increase shareholder protection from any execution risk that might emerge in the network construction of the NBN.
“For Telstra, the revised deal with NBN Co represents a net positive, effectively securing the cash payments for its loss of customers and the provision of infrastructure required to build the NBN,” Mr Diddams said.
“This deal also removes a potential overhang on Telstra around the future cost obligations of copper and HFC networks.
“It appears both Telstra and NBN Co have negotiated a mutually beneficial deal.”
THE AUSTRALIAN DECEMBER 16, 2014 12:00AM
Mitchell Bingemann
Reporter
Sydney
TELSTRA’S reworked $11.2 billion deal to participate in the National Broadband Network has helped the telco giant’s shares defy a market sell-off precipitated by government revelations that the budget deficit would blow out to $40.4bn.
Shares in Telstra jumped 0.7 per cent to $5.74 yesterday in a falling market that shed 0.64 per cent as the government unveiled its update for its mid-year economic outlook.
The jump in Telstra shares came as analysts and investors cheered Telstra’s reworked NBN deal, saying it would protect shareholder value and secure the company’s role in the mammoth infrastructure project.
“We welcome the new deal as it secures their cash payments schedule under NBN and avoids material cost obligations in the future,” said Citi analyst Justin Diddams. “That said, there’s limited change to our core Telstra valuation but it does remove an overhang.”
Telstra signed its revised agreement with NBN Co over the weekend. The $11.2bn net present value deal will see the ownership of Telstra’s copper and pay-TV hybrid fibre-coaxial (HFC) networks transferred to NBN Co.
Those assets will be used to construct the Coalition’s “multi-technology” NBN, which will use Telstra’s copper network to connect homes instead of Labor’s approach, which involved laying fibre-optic cables direct to premises.
According to calculations from Mr Diddams, the revised deal will see Telstra receive a cash windfall of about $18bn from NBN Co over the next eight years. Those payments will cover disconnections, infrastructure leases and policy changes that will benefit Telstra.
In total, Mr Diddams said the deal was worth about $1.30 per share of value to Telstra.
“We welcome the payments, providing a platform for reinvestment and/or increased shareholder returns,” he said.
“However, we view them as already priced into market expectations, (and) as such retain our neutral rating.”
There could be additional value handed to Telstra if the telco decides to tender for work from NBN Co to remediate the copper network and build portions of the project around the nation.
As NBN Co progressively takes control of Telstra’s copper network for its fibre-to-the-node system, the company will also take on responsibility for maintaining Telstra’s century-old copper network.
NBN Co has not yet determined the cost for maintaining the copper network, but it is understood the company is looking at options to outsource the work.
Mr Diddams said the transfer of remediation work to NBN Co as well as the reduced complexity of processing payments to Telstra would increase shareholder protection from any execution risk that might emerge in the network construction of the NBN.
“For Telstra, the revised deal with NBN Co represents a net positive, effectively securing the cash payments for its loss of customers and the provision of infrastructure required to build the NBN,” Mr Diddams said.
“This deal also removes a potential overhang on Telstra around the future cost obligations of copper and HFC networks.
“It appears both Telstra and NBN Co have negotiated a mutually beneficial deal.”