Calling Telstra

If there's one topic I'd love to sidestep, it's whether Telstra's T3 float of $8 billion worth of shares is a good buy. However, given this is what I'm paid to do - stick my neck out - I'll go close to making a big call!

Don't understand, don't buy
Regular readers know I've declared Telstra a non-Warren Buffet stock. Buffet, regarded as one of the greatest stock pickers of all time, insists if you don't understand the company, avoid buying into it.
Sure, research can change your knowledge of a company but sometimes the amount of unknowns is so numerous it makes an investment in a share nothing short of a punt.

An easy call
Easy, smart investments for non-professionals are what I like when giving my readers a leg up. For those who asked me, I thought Coles Myer was a good buy when it sold off its troublesome department stores. A company selling food, liquor and petrol looks set for a bright future especially when it, along with Woolworths, dominates the supermarket spend in this country. Meanwhile the trend price for oil will be a friend to Coles as well. The takeover merchants only added to the lovely price rise for the Melbourne-founded retailer.

Back to Telstra
The new Next G product, which does everything from giving the bush more access to a broadband type product to giving us TV on our mobiles, is not under the regulatory eyes of the ACCC and that has to be a plus for the company going forward.
Also sacking 12,000 workers, while horrible to imagine, in the cold world of balance sheets will help the bottom line, possibly keeping the 28c dividend alive longer than the one year promised with the T3 float.

The competitors
Against this I don't know what Telstra's rivals are up to - they're not just going to sit by and hand over the 3G market to their Aussie competitor. Already Optus has its animal ads talking 3G. And what about the ACCC? The consumer and competition watchdog never gives Telstra a break!

The political landscape
And given the Federal Government's prank to force its own man in Geoff Cousins onto the board, that told all and sundry that political imperatives could get in the way of profit goals.

And what if Labor won the next election? Sure, the Government has no direct holding of shares as the balance of its shares will be in the Future Fund, but who knows how a future government could twist David Murray's (or some replacement's) arm,?
(The Fund does have to hang onto its $15 billion worth of stock for two years but after that, who knows? However, I don't think Mr Murray would act to undermine the value of his own holding in the Fund.)
Throw in future threats, such as the likes of Yahoo!, Microsoft and others, and telecommunications is a really hard-to-fathom industry.

More on the plus side
On the plus side, the 14% yield on a $2 instalment looks good for a year but it could be tricky for the share price when the year is up. The company's new business model would have to be kicking some very big goals to hold market support.

More grey area
Another unknown to affect your buying decision is the fact that we don't know what price the shares will ultimately sell for. A book build, which takes offers from big financial institutions, will eventually lead the Government to dictate the final price. The total outlay for a retail investor could be $3.80, or even higher, but that could be a stretch.

A call on price
Interestingly, one of the country's renown Aussie share picker - Peter Morgan from 452 Capital speculates that at $3.50, in total, could be a good price to play ball with T3.

And that's the point - the price is critical to the short-term value of this exercise.

Switzer says
Telstra is a punt nowadays and could sit nicely in a portfolio of say 10 shares, where its risk is diluted. But I'd not recommend it for anyone as a one-off share market play, unless they were thrillseekers.

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