THE outlook for telecommunications stocks is good, with most analysts putting buy ratings on ASX-listed stocks.
Mobile retail prices have fallen since Telstra surged back into the local market, meaning little room to compete on price.
Analysts are keen on Telstra at the moment because of a potential share buyback funded by $11 billion that the telco will receive from NBN Co over 30 to 40 years, the government-owned company building the national broadband network inside much of Telstras infrastructure.
Telstra is expected to receive about $90 million in infrastructure leasing payments this year, and about $100 million for transferring customers. These figures depend on the rollout schedule, but will increase and stabilise over 10 years.
However, Telstras board cannot finalise a buyback until the competition commission formally approves its structural separation undertaking, which may not happen before the half-year results are announced on Tuesday.
We believe Telstra will continue to be a solid performer in 2012, supported by its 8.5 per cent yield and potential capital management, RBS analyst Fraser McLeish wrote in a note to clients last week. We see upside [potential for] 2013-14 earnings on better than expected cost reductions and NBN payments starting to come through.
In the fixed sector, iiNet and TPG have been increasing market share. iiNet has been growing through acquisitions and has boosted its fixed broadband subscriber base to 870,000 after buying Canberra cable-owner TransACT and national internet service provider Internode late last year.
The company is also on analysts radars as a potential takeover target for TPG, which has a market capitalisation of $1.1 billion compared with iiNets $448 million. TPG already owns 7.24 per cent of iiNet.
Macquarie Equities analyst Andrew Levy thinks that in the near term a takeover attempt is unlikely, but he would not be surprised to see TPG lifting its stake in iiNet.
For TPG, a move on iiNet would be highly accretive, he said. We estimate adjusted earnings per share [growth] of 24 per cent in 2012-13 and 21 per cent in 2013-14. This assumes TPG pays $3.38 per share . . . and realises $18.7 million in synergies. Even assuming no synergies, we would see about 14 per cent earnings per share accretion in 2012-13.
Back in the mobile sector, Deutsche Bank analysts are impressed with the narrow range that Optus parent SingTels shares trade in despite about 70 per cent of its revenue being subject to foreign currency fluctuations.
SingTel has traded within $S2.95-$S3.15 on 71 per cent of trading days since September 2009 and . . . we see no reason for SingTel to break out of this range in the near to medium terms, Deutsche analysts wrote in mid-January.
For investors seeking defensiveness, SingTels relative stability should be interesting, especially when combined with its relatively good daily trading liquidity and the 5.2 per cent dividend yield.
Another dual-lister is incumbent Telecom New Zealand, which last year demerged its network operations unit so the new company, Chorus, could participate in the governments Ultra Fast Broadband rollout.
Citi analyst Justin Diddams expects Telecom NZ to focus on increasing its market share in fixed telephone lines as well as increasing its mobile-network customer numbers and offering enterprise services for businesses.
That said, were not getting too excited, as these initiatives will need investment and, with the new CEO not starting until mid-2012, execution will take time, he wrote in a note to clients. We still like the capital returns, with 8.5 per cent dividend yield and scope to repurchase 13 per cent of the equity in a share buyback across 2013-14 as management re-leverage the balance sheet to net debt of 1.1 times earnings.