A few weeks ago, a reader asked me about my current thoughts on Telecom New
Zealand (NZT), which, as of 07/01/2008, was down 16.5% since I bought it last
year. The blog’s hacking sidetracked me a bit and also, I’ve been “rolling” NZT
and its future prospects in my head for a while. But judging from today’s
visits, it looks like visitors are very worried about ACAS as well so a quick
review of my current losing positions (NZT, ACAS, SKM, GE) may be of benefit to
me as well as readers:
Telecom New Zealand (NZT) — At this point, I’m willing to concede that my initial
thesis was wrong on various counts:
- I did not accurately gauge the deterioration of their operating results. My
initial projections were a 6-8% decline in EBITDA the first year and an overall
negative 1% growth for 5 years after. Instead, they are announcing another 5%
avg EBITDA decline for next FY in conjunction with an increased capex spend (as
much as 10% higher YOY).
- Additionally, nothing in management’s discussion of the company gives me
confidence that NZT has any solid plans to reverse their sliding market
position. As of Q3 2008, pre & post-paid ARPUs have fallen 9% and 20%
respectively and I can’t tell you any solid plans they have to change this.
- NZT has also failed to act as a hedge against the dollar as the NZ$ has
fallen roughly 5% since we’ve opened our position. While this may change as the
US$ reveals the extent of its structural flaws, the New Zealand economy is not
the Australian or Brazilian or even a Southeast Asian economy. New Zealand has
fallen into recession, which may weigh on any positive currency effects for some
time.
With all that said, the time for me to sell was a few months ago. NZT has now
fallen to levels where downside risk seems fairly limited to hold, especially
considering the dividend. I have yet to average down on this stock, which is
probably the best indicator of my opinion on NZT. I may (or may not) sell this
stock later to harvest tax-loss but not until after the pay-up Q4 divvy.
American Capital Strategies (ACAS) — I got a lot of hits on my website today,
apparently from concerned shareholders worried about the constantly-dropping
share price.
- Obviously, I was a little early on ACAS but after searching for news on the
company, I stand by my
assessment on the stock. I see no substantive new information to change my
stance.
- As Jim Cramer once stated, ACAS is a battleground stock.
