In front of me I have five leading analysts’ reports published this morning from Merrill Lynch, JBWere, UBS, Macquarie and Citgroup that have recommendations ranging from Buy to Sell/high risk on Telstra.

Many individual investors would only receive research from their own broker and may make investment decisions unaware that there is such a wide church on the future of Telstra. The institutions would receive several analysts’ reports and see the varying recommendations which would either confuse any investment decision or let them pick whichever report supports their own position.

I have been analysing Telstra’s performance for many years, not for investment purposes as I hold no shares but because they really are the gorilla in the communications and media market. The revenue for TV in Australia is nearly $4 billion a year, the wider advertising market $12 billion and the telecommunications market a massive $38 billion. Telstra, with revenue of $25 billion, is alone twice the size of the whole advertising market, six times the television market and ten times as big as the PBL or Seven television and publishing empires.

While the media operators are reporting massive write downs and analysts are valuing the PBL media Group and the Seven Media Group at zero, Telstra made a profit in 2008 of $3.6 billion. In the tough December half, Telstra revenue was up by 3.2% and EBITDA up 3.1% to $5.3 billion. Telstra has maintained its position as one of the top performing international telcos and absolutely dominates its rival in market share in Australia. One may not have liked the way the departing CEO Sol Trujillo operates and his extremely aggressive stance to opponents, regulators or governments but he has produced extraordinary results for shareholders.

Telstra should be an analyst’s dream but in reality it is a nightmare. It is a dream because Telstra produces more operational performance figures from its key businesses than probably any other company in Australia and certainly puts the media companies to shame. The analysts all produce similar detailed analysis of the performance of Telstra; the nightmare is the “take no prisoners” approach taken by Telstra to the NBN project, its aggressive stance to the Government and its exclusion so far from the NBN tender process that leaves the analysts with varying attitudes to the financial impact on Telstra in the future. The 12-month target share price by the analysts ranges from $4.75 to $3.25 and from buy to sell.

                                                            Current price

                                                            $3.68

Broker Recommendation                      12 Month Target

UBS Buy                                               $4.55

BA Merrill Lynch Buy                             $4.25

JBWere Hold                                        $4.75

Macquarie Underperform                     $3.80

Citi Sell/High Risk                                 $3.25

Sol will have left an indelible mark on the telco industry in Australia, creating a dilemma for the government, regulators, competitors, analysts and investors.

Peter Fray

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