Do you like Telstra?
“It has been hard to like it. People got excited ahead of the earnings result, so its share price actually did quite well leading up to the result. People were hoping the competition would ease off for the mobile markets,” Jun Bei said.
“But sadly, just before the result, you saw competition picking up and the new TPG started discounting the mobile plans. That doesn't bode well for future earnings. If competition doesn't stabilise, it just means earnings aren’t going to grow,” she said.
What about the dividend?
“While the dividend looks pretty good, it's not going to grow. And secondly, it's paying more than a 100% of its earnings at the moment. Telstra has talked about the dividend. They may even scale it back. So you're looking at a shrinking dividend. That dividend will get cut somewhat because earnings are really not growing,” she added.
“It's good to buy Telstra for some income. If you want the dividend, that's probably where you can go but it's not very exciting,” she said.
“There's another catalyst in the future — the separation of the infrastructure assets. And that can generate a lot of value. It's going to take a while but that's a possible catalyst that's coming up.”
What about Mums and Dads buying it?
“As a retail investor, you look at absolute return models. So the downside for Telstra is probably limited. It pays a good dividend yield and its downside is probably reasonably protected. But as a professional investor, I have a benchmark,” said Jun Bei.
“I need to buy a company that will outperform the market, and on that basis, I feel Telstra is a bit harder. But a retail investor’s downside is reasonably protected.”
Chart 1: Telstra (TLS)
What’s your view on AMP?
AMP is currently another unloved stock, which might be loved again. Do you think there's value in AMP?
“I wouldn't touch it,” Jun Bei said emphatically. “They don't even have a management team. They will try and separate the assets. It’s going through enormous challenges. Now without management, they have institutional investors pulling money out of their funds management group, because of what's happened with the group.”
“There will be significant review and restructure of this business. AMP Capital is probably the jewel in the crown. If you sell that bit, what about the rest? What's there? It's very hard to assess,” she said.
“Their separation could potentially generate some value, but I put it in the too-hard basket.”
Chart 2: AMP (AMP)
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