Telstra firms in fading market

Telstra's was sold off with the rest of the market, falling from a high of $3.92 in mid-April to $3.46 by mid-June - a pullback of 12%. Why this occurred shows how volatility is driven more by sentiment than anything else. Even a cursory look at Telstra and you'd realise that it has little or no exposure to Asia and solid A$ revenues. Along with the realisation that an economic slowdown doesn't stop people from using the telephone and the price came back.

Limitless potential

Whilst some 'noise' has been made overseas about Telstra being fully valued on comparative EBIT multiples compared with overseas telcos, it's still not understood by overseas investors that Telstra's potential as a full service provider is limitless. The company offers revenue growth through enhanced value-added services, cost reductions flowing through to margin improvements, falling capex levels, improving cash flows and enhancing dividend prospects. Management has also established a sound track record in achieving its aims.

Telstra has had its problems with the ACCC and anti-competitive behaviour. However, it seems that the ACCC is trying to promote self-regulation and this will assist the entrenched players like Telstra, Optus, Vodafone and AAPT. For the smaller players, it's a lot harder.

Telstra realises it will lose some market share in Australia due to the increasingly competitive environment. So apart from purely focusing on retaining that market share, the company is looking at evolving its value-added services and cross-selling them to customers. Management understands the need to compete on a global scale and is looking at possible expansion overseas. They recently announced a 10% stake in Worldpartners, an alliance of 19 member carriers that provide global telecommunication services operating in key markets worldwide.

Telstra shares remain an attractive option in times of market weakness and possible economic uncertainty - a lighthouse in a storm you could say. ACCUMULATE on weakness.