Forum Archive Index - February 2004

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

Hi Rockbottom,
 
>
> Thankyou Phaedrus for that chart. If you convert the figures to NZ$
> you will find the Telstra shares have almost always had a higher share
> price than Telecom. There are of course exceptions In April 2000 the
> prices were about the same and in Apl, May, June 2003 Telecom broke
> through the Telstra price. This has now happened again.
>

An interesting observation there.   I tend to think of shares in their 
'home market' currency.   Generally it will be the home market 
investors that drive the share price.   Since NZ has adopted the 
reserve Bank of Australia finance policy (tolerating inflation of up to 3% 
and not worrying if short term one off events push it higher, not the 
strict 2% we had before) my perception is that the $NZ/$A exchange 
rate has been more stable than before the policy change.   Or maybe 
that is only my perception  (I sense another assignment coming on for 
Phaedrus here, if he's willing to take it on!).

If so I predict that the exchange rate volatility between each side of the 
Tasman will become less of an issue in the future for trans tasman 
share owners.    

> 
>The average Telstra premium in this period is about $1.10 but has
>fluctuated wildly between -20c to over $3.00.This variation has given
>the oportunity for traders to switch from one to the other. Taking
>history int accoumt it would be profitable now to switch to Telstra.
>

They often say history repeats itself, but taking into account the more 
stable prospects for both TEL and TLS since the dot com boom I am 
picking that it won't.   Given current company policy for both TEL and 
TLS I see the price levels being very similar for both shares over the 
next twelve months.    In other words not much scope for traders to 
skip between the two any more.

The financially stronger Telstra is much more dominant in the total 
Australasian market and is retaining a greater percentage of profits to 
reinvest in its network, but is firmly under the thumb of the Australian 
government in more ways than one.    OTOH, TEL is enjoying the very 
weak regulation that exists in the NZ market  (being allowed to hold 
onto its local loop), and it is paying good dividends after apparently 
giving up on aggressive expansion into Australia.  TEL vs TLS an even 
match for 2004c as I see it.
 
>
>Unfortunately for this scenario there may be some fundamental 
changes
>taking place. Snoopy has commented on the higher dividend yield 
from
>TEL and according to Rockbottom's theory of relativity TEL should be
>the preferred share (and high up the list of shares to buy).
>

For income investors I agree.    IMO the growth prospects of Telstra 
are better though.  They are retaining more of their earnings to 
reinvest in their business and technology is still-a-changing.

> 
>But you can't buck the tide of history. So sell Telecom and buy
>Telstra for the short run. Longer term investers should buy Telecom.
> 

Funny how the same facts can lead to competely opposite views from 
different people.    By my assessment TEL is the short term play and 
TLS is for the longer term.  It will be interesting to see who is right, or 
maybe we just both have different understandings of the term 'longer 
term' Rockbottom?

SNOOPY




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