The Motley Fool

Is Telstra in the Clear?

Telstra (ASX: TLS) has today announced a deal with Vodafone NZ for the sale of Telstra’s New Zealand business, known as Telstra Clear.

The Australian telco will receive $660 million for the business, as long as the NZ Commerce Commission gives the deal its blessing.

From outcast to market darling

The news was well received, with Telstra shares up slightly to $3.865 in late afternoon trading in a down market. After trading as low as $2.70 in August of last year, the company’s share price has recovered strongly to be at the best price in over three years – not bad when you consider the $0.84 in dividends it’s paid over that time.

After being ignored for years (save the occasional article decrying its falling share price), the investment community seems to have rediscovered Telstra.

Of course, long-time readers will recall we did suggest it might be good value in our New Year’s ‘Top Stocks for 2012’ article. (The others were QBE Insurance (ASX: QBE), Westfield (ASX: WDC) and Coca-Cola Amatil (ASX: CCL), by the way.)

What next?

Guessing the rationale for short term share price moves is enough to send anyone mad, but best guesses range from a rush to so-called ‘defensive’ businesses to a belated realisation that Telstra wasn’t the awful business that popular opinion suggested it was.

The sale of Telstra Clear will further bolster the telco’s coffers, and with the company confirming that media acquisitions are off the table, attention is turning to what it will do with the cash. Some are expecting a big acquisition, while many are hoping for a special dividend or share buy-back.

Foolish takeaway

I’d prefer they use the funds to pay down debt, and I’m encouraged that they haven’t rushed into any big acquisitions thus far. Here’s hoping that management continue to be conservative and avoid anything silly!

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in Telstra, QBE, Westfield and Coca-Cola Amatil. You can follow Scott on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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