THE DISTILLERY: Telstra triumphant

Jotters trumpet Telstra's solid position after its NBN deal, while others are split over the implications of the RBA minutes.

The absence of uncertainty over Telstra Corporation has never been more evident than at yesterday’s AGM, where the telco adopted a traditional dividend policy. The strength of its deal with the government over the National Broadband Network is showing through the company’s growing confidence. Meanwhile, two commentators have come to rather different conclusions about the implications of yesterday’s minutes from the Reserve Bank of Australia.

But right off the bat, Fairfax’s telecommunications reporter Lucy Battersby and Business Spectator’s Stephen Bartholomeusz reflect on how Telstra has just gone through its first AGM in four years where the National Broadband Network wasn’t front and centre.

Battersby noted that: "Telstra used to be the company that provided fireworks at its marathon-like annual meetings. But this year shareholders were subdued and the meeting finished after just two hours. There were no fireworks and the caterers rushed to serve sandwiches and party pies half an hour early.”

Fellow Fairfax writer Malcolm Maiden argues that Telstra’s NBN deal is so good that chairman Catherine Livingston can remove the board’s commitment to the 28-cent dividend guarantee without causing a fuss.

"It had been put in place 'to avoid any uncertainty’ as negotiations with the NBN Co and the federal Commonwealth government about Telstra's co-operation with the NBN fibre broadband rollout occurred. Now, with Telstra's NBN deal secured, Telstra's capital management framework was also secure, she said, and in 2013-2014 the board would return to its normal practice of considering dividends every half-year. Not so long ago that comment might have sparked a sell-off.”

Indeed the new policy is expected by many to eventually lead to an increase in dividends. The Australian Financial Review’s Chanticleer columnist Tony Boyd tells investors to hold their horses. The new policy won’t kick in until 2014 at the earliest.

"The reference to Telstra as a bond is common parlance among fund managers and analysts. They look at the fully-franked dividend yield of about 9 per cent after tax and the modest earnings outlook and say the stock is fully priced around $4. But bond prices rally as interest rates go down and it’s evident from the latest Reserve Bank of Australia board minutes, released on Tuesday, that official cash rates are headed down. That means the share price could rally further even before dividends start to rise. Telstra dividends could jump dramatically after 2014 depending on the rate of cash flowing into the company from NBN Co, according to Justin Diddams, analyst at Citi. His estimates are based on a forecast of significantly higher operational free cash flows.”

Meanwhile, Fairfax’s Michael Pascoe explains how the Reserve Bank is looking beyond the dire headlines – as it’s supposed to – of a weak jobs market and the end of the resources boom. The result is that there’s little evidence of a pending Melbourne Cup rate cut.

"Looks like you could be safer betting on the horses rather than another interest rate cut from the Reserve Bank on Melbourne Cup day – the October board minutes paint a considerably more sanguine picture of the Australian economy than the market commentariat. The longer perspective of the RBA continues to look through many of the passing headlines, offering some important and calming insights along the way…The minutes note that the money market expects further rate cuts ahead, but the board's commentary doesn't lend a lot of support to that expectation, with the caveat of the global economy not deteriorating any further.”

With that last line in mind, check this thought from The Australian Financial Review’s economics editor Alan Mitchell: "Financial markets expect another interest rate cut next month, and there is nothing in the minutes of the Reserve Bank’s October board meeting to make them change their mind.”

Good lord! The Distillery suggests that the only way the RBA’s statement could contain both "little support” for expectations of a November rate cut as well as "nothing to change the minds” of those expecting one, the central bank must have said absolutely nothing yesterday.

Judge for yourself. Here’s the link to the minutes.

In other economics news, Fairfax’s Ross Gittins laments the federal expense of measuring GDP, when mere pennies are thrown at measuring poverty.

Going into the global financial crisis Australia’s poverty rate was amongst the highest in the developed world. While the situation in some of our western counterparts has deteriorated, improving our comparative situation by default, our neglect is disgraceful.

The Australian Financial Review’s Karen Maley takes out some of the rigidity surrounding the definitions of the ‘growth’ and ‘austerity’ camps. Both recognise the need to cut spending and how counter-productive it would be to do so at an excessive hit to economic growth.

Staying abroad for company stories, The Australian Financial Review’s Matthew Stevens writes that the Mongolians mustn’t have listened to the advice of Foreign Minister Bob Carr about the keen eye that global capital has on "its nascent transition from frontier to mainstream investment status”. Indeed, Fairfax’s Peter Kerr describes the news that the Mongolian government wants a greater slice of the spoils from Rio Tinto’s Oyu Tolgoi project as its very own "Groundhog Day” scenario. The same discussion took place this time last year.

In other mining news, The Australian’s John Durie remarks on the astonishing turnaround in the fortunes of Fortescue Metals Group. The Australian’s Barry Fitzgerald says junior copper producers are missing out on the share price strength normally transferred from the performance of the metal they trade – gold companies aren’t the only ones missing out.

Meanwhile, The Australian’s Andrew White explains that the debt negotiations at Nine Entertainment are not really focussing on the amount of value that mezzanine lender Goldman Sachs should get. What’s in dispute is the structure from which Goldman will receive that value.

The Australian’s Bryan Frith says it’s time to tackle the growing influence of high frequency trading and dark pools.

And finally, Fairfax columnist Michael West argues the High Court’s judgment that you don’t need a licence to be a litigation funder could spell trouble.

The High Court ruled that in regards to the case of International Litigation Partners v Chameleon Mining, ILP was providing credit rather than financial services.