Telecom New Zealand: How low can it go?

Telecom NZ [TEL.NZ] has become a bit of an obsession for me from the end of last week because of its spectacular drop in share price. I picked it as Stock of the Week this week because of its poor share price and opportunities that exist to buy as a result.

It is now testing a 52 week low of NZ$2.26 having finished at $2.28 at close of trading yesterday.

With market sentiment in the doldrums and a poor quarterly profit to report this Friday, if we get a combination of negative pressure Telecom's share price will probably test an all time low if it hasn't already. (see chart above)

I cant find the 1991 IPO price for the company but from the chart it looks like the current share price is close to its IPO price.

It is an ugly looking chart I must say, with a peak during the dot com boom and downhill all the way since then.

Just as an aside, I wonder if CEO Paul Reynolds is going to give back his huge incentive bonus for company performance (presumably he received it for positive performance) last year, considering poor company performance over 2008-2009 and the associated share price drop ?

It is rhetorical question of course but Paul should consider giving it back, his shareholders need to put some pressure on him to perform. The chart says he hasn't and so does the bottomline.

Telecom @ Share Investor

Stock of the Week - Reprise: Telecom NZ Ltd
Stock of the Week: Telecom NZ
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Stock of the Week - Reprise: Telecom NZ Ltd

I picked this stock on December 8 as Stock of the Week because of its $2.36 share price. Since then the stock lifted to just below $2.60 on January 10 (around 10% gain so well done if you bought at the lower price levels) before tracing back to finish at $2.31 on close of market last Friday. This is why I have picked the stock again

Telecom New Zealand Ltd [TEL.NZ] is a good stock to trade rather than hold long term (see chart below for comparison with NZX50 gross index) simply because the trading volume is consistently the highest on the NZX so a good stock to make a quick buck on.

I am not a chart man myself or a short term trader but if you look at the one year chart above there has been a good deal of money to be made in the earlier part of 2009, going from around 10c per share right up to 60c per share profit.

The share price reached an 10 month low of NZ$2.31 Friday and has traded like a roller coaster (hence the trade possibilities) from a year low reached in mid January 2009, so one could assume that indicators are showing that an opportunity exits for a good trade at these stock price levels and a good range for profit made considering its recent trading history.

Please beware though, although I am picking this stock today to give traders a heads up (seasoned traders of course will already know about this opportunity) given the present volatility in global stockmarkets and the negative attitude to stocks at present the patient bargain hunters could well get this stock at a lower price than $2.31 but having said that, it is close to its all time low of around $2.25 reached December 2008. (see chart below)

I don't like the long-term prospects for the company, it still has a defensive, reactive culture with employees who are badly trained and informed on what they are selling and poor service levels but it has a 10% plus gross dividend and it isn't going to go out of business any time soon.

Shorties will win here.

Good luck!

Telecom @ Share Investor

Revisiting Telecom
Getting cute and fluffy with Teresa Gattung
Telecom NZ Hangs up
Business Gobbledygook puts up barriers to communication
A Rare Breed
Telecom NZ facing a watershed period
Biology a major key in "glass ceiling" for women
Telecom rewards Gattung for mediocrity

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Stock of the Week Series

Reprise - Contact Energy Ltd
Restaurant Brands
NZ Refining
Ryman Healthcare
Mainfreight Ltd
Fisher & Paykel Healthcare
Xero Ltd
Auckland International Airport
Sky City Entertainment Group
Burger Fuel Worldwide
Michael Hill International
Contact Energy Ltd
The Warehouse Group
Fisher & Paykel Appliances
Telecom NZ

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Hallenstein Guidance not indicative of wider retail recovery

News that Hallenstein Glasson [HLG.NZ] has had a good half year to 24 Jan 2010 in a profit guidance to the stockmarket, shows how good management at that company have been to weather the economic downturn but that must be put in the context of a particularity bad half for the corresponding 2008 period and of course this is only a six month period - lets not count our board shorts until they are sold sort of thing. With current sales and profitability it is very likely that the company will beat 2009 full year profit of nearly NZ$13 million and that was the worst year since the 2003 full year result.

The most important part of the update is that margins for the company have improved, not easy to achieve during the seemingly endless summer sales of its competitors, and that stock levels have been managed to levels that seem to have avoided the big prices cuts of competitors who have stock to burn. Management have seen fit to boost the dividend by 40% to 14c, so they seem confident that the good news is set to continue.

A good definite cold Winter season will bode well for the coming 6 months of operation and it is this traditional slower sales season that will define a good or excellent outcome come full year reporting in August.

Retail over the last 2 years has been hard going in New Zealand and is not likely to recover to pre-recession spending for many years to come in my opinion.

Over the last 6 months many retailers have fallen by the wayside, Stax, Hill & Stewart have been but a few and some independent retailers have gone to the wall as well and we are likely to see more over 2010, so the Hallenstein profit update is by no means an indicator of a wider retail recovery.



Meanwhile the stockmarket has overreacted in a big way to this positive news (see chart above), marking up the stock price by 35c on close of trading last Friday and 15c at time of writing this post. This is more than a 10% gain in 2 days and not a wise purchase at these prices considering the uncertain overall retail outlook, even though the dividend makes the annual return at the current share price of close to 10% net.

Long term investors in this company would well be advised to wait for another opportunity, while shorts termers could see some upside in dividend stripping as we come closer to the dividend payout date.

Proceed with caution.


Disclosure: I own HLG shares in the Share Investor Portfolio


Hallenstein Glasson @ Share Investor

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