Telecom shares weaken ahead of official trading


Telecom Eireann shares gave up some of Friday's gains yesterday to close nearly two per cent lower at £3.67 (€4.66) in a generally lacklustre session on the Irish stock market. However, the share price remains nearly 20 per cent above its flotation price of £3.07 (€3.90).

Dealers said the shares, which remained active with plenty of flow from retail investors, spent the day in the €4.65 to €4.75 range. However, they said it was impossible to predict where the share price would settle eventually.

"Whether they will settle around €4.50 or €4.70 is very difficult to say," one dealer said. "On a valuation basis, it is at the upper end of the range compared to other telecoms stocks, but there are good reasons for it to maintain a premium." Another uncertainty regarding the stock is over the extent to which the demand for shares by local institutional investors has been satisfied to date. Such investors - which include the big pension funds and investment management companies - have to buy Telecom shares if their portfolios are to reflect the ISEQ index of shares.

Their remaining appetite for the stock will have a major bearing on how it performs when official trading begins on Wednesday, after which time the smaller investor will be in a position to trade.

To date, only those retail investors with an established relationship with a stockbroker have been in a position to sell their shares.

Novice investors have had to wait until they receive proof of ownership in the form of a share certificate or nominee account statement. The certificates and statements will be sent out from Wednesday, but it will be late Thursday or even Friday before many investors will be able to join the market.

In assessment of the company's prospects, BCP stockbrokers forecast that Telecom's pre-tax profit will grow from €283 million (£222.88 million) in the year to last March to €292.9 million (£230.75 million) this year and €311 million (£244.93 million) the year after.

Highlighting one of the factors which has made the share attractive, BCP points out that the declining corporate tax rate will benefit Telecom, helping earnings per share to rise from 9 cents in the last financial year to 9.7 cents this year and 10.7 cents in the 2000-01 financial year.

Dividends should grow in line with earnings, it predicts.

In the longer term, BCP is backing predictions that Telecom will become a takeover target for a large European telecommunications company. The group's scale of operations in the Irish market will make it attractive as a takeover target, it believes, despite the small size of the market here.