Telecom New Zealand’s first half result on the 22nd of February will be an interesting one.
The New Zealand Telecommunications market remains very competitive particularly in the fixed line space with bundled phone and broadband deals now around $75 a month, down from around $100 a couple of years ago.
At its full year result in August Telecom highlighted that they would compete aggressively in fixed line to maintain broadband market share. As a result of this competitive environment and Telecom investing to hold broadband market share they gave earnings guidance for EBITDA of flat to a low single digit percentage decline.
The good news for Telecom is that they have the opportunity to offset falling revenue by lowering costs through reduced headcount, decreased capital expenditure and simplification following the demerger from Chorus. The result will be interesting therefore to see if the fall in costs will be large enough to offset the fall in revenue. The market will also be looking to see if new CEO Simon Moutter has any new plans to help boost the medium term profitability of the company.
Consensus earnings data from market analysts currently forecasts that Telecom will be able to maintain and marginally grow earnings over the next three years. This is good news for investors and those seeking income as it means that Telecom will be able to continue to pay a healthy dividend.
Jonathan Windust
Disclosure of interest: Milford owns shares in Telecom on behalf of its clients