Forum Archive Index - August 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Interesting exercise Nick.
I'll play :-)


> 
>I would be looking for something rather safe 
>which would have little obvious downside, 
>


So I would look for something with a relatively low price to saleable 
assets ratio.


>
>combined with some prospects for growth.
>


That is in a relatively expanding section of the market.


>
>several rejected them on the grounds something
>bad might happen 
>
>really bad harvests (montana etc) or
>


Probably less of a concern on a three year time horizon.  Really bad 
harvests on each of three years in a row is less likely.


>
> terrible economic decline in nz (restaurant brands etc)  
>


So you wouldn't want something affected by discretionary spending in 
our own small market.


>
> dollar suddenly taking off to very high levels 
> (tourism, and exporters)
> 


My view is that this wouldn't be a problem if you were in a high 
margin business (i.e. not trading commodities).



So the answer is... TEL (Telecom)!, and here is why it satisfies 
all those criteria...

It is very easy to tack on added value options to existing customers 
accounts.  Call minder, call diversion is all stuff that costs 
virtually nothing to run, yet scoops in the dollars that all flows 
straight through to the bottom line.  And telecommunications is 
probably less affected by the price of oil than any other industry.

It isn't discretionary.
Everybody needs a telephone (well actually they don't, strictly, but 
have you ever heard of anyone voluntarily giving their landline up?) 
 People are conditioned to paying high base rentals and making lots 
of calls to get their value out of their ear extensions.

The overall 'infotech' market is expanding and if you look at the 
leading 'infotech' consortium 'Telecom''Sky''Independent News' and 
'AAPT', I think Telecom is the cheapest entry point into that 'gang 
of four'.  The AAPT link even gives Telecom a bit of 'export' upside, 
which realistically hasn't been there before.

I think Telecom have the marketing skills to make it happen.  
Advantage may be touted as the only profitable new economy stock in 
NZ, but people often forget about the stand alone business unit 
'Xtra'.

I was a little perturbed to see that the net tangible asset backing 
of Telecom is only 60c or so.  But I think the surety of their cash 
flow makes the fire sale value of Telecom much greater than this.  

I am sure there will be shares in 'infotech' that will outperform 
Telecom but with the prospect of facing an archer, having my back to 
the wall with an apple on the top of my head, I'll take my 
chances with Mr TEL(l). SNOOPY 

(disc. have Telecom, thinking of getting a few more)



---------------------------------
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e-mail  tennyson@caverock.net.nz
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"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



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