Tuesday, May 25, 2010

Telecom maybe oversold

Every market watcher is talking about it, just how low is the Telecom NZ [TEL.NZ] share price going to go.

Well at time of market close today the TEL share price is down 11c to a new all time low of $1.85 (see 2 month chart above) on lowish volume.

I don't want to discuss this today though.

I think the market has oversold the stock at this point and seems to be discounting the value that could be added to shareholders if the company decides to split up its various divisions so it can bid for 1.5 billion in taxpayer dosh to build a new fibre network for faster broadband in New Zealand.

The decision to split the company is by no means a definite one but beleaguered CEO Paul Reynolds indicated yesterday that this could be on the cards and the company is investigating the possibility of breaking Telecom into two parts - Chorus and Telecoms other divisions.

Depending on how a possible separation is executed, this could be a good move for existing shareholders as a split could realise them full value of the companies two parts by opening the Chorus lines/infrastructure business to the posibility of nabbing a slice of that taxpayer moola.

While there might be one-off and ongoing costs for the two separate businesses I think investors at these price levels will benefit from a separation, at least in the short term.

Telecom NZ @ Share Investor

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