This story features TELSTRA CORPORATION LIMITED. For more info SHARE ANALYSIS: TLS
Bottom Line 11/10/16
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Down
Support Levels: $4.92
Resistance Levels: $5.85 – $6.06 / $6.53 – $6.73
Telstra Corporation ((TLS)) is a telecommunications and information services company providing services for domestic and international customers. It is Australia's most prominent telecommunications company with brand recognition across all segments of the industry. On January 21st 2014 it acquired O2 Networks, a developer of data networking and network security software. In May 2014 the Company completed the sale of its Hong Kong based mobiles business CSL to HKT Limited. In July 2014, Telstra acquired an undisclosed minority stake in Telesign Corp. For the year ending the 30th of June 2016 revenues increased 2% to A$25.91B. Net income before extraordinary items decreased 7% to A$3.76B. Revenues reveal the Global enterprise and services (GES) section increase of 11% to A$6.25B and the Telstra Operation section increase of 29% to A$342M. The dividend yield is currently 6.2%. Broker/Analyst consensus is “Sell”.
Reasons to be cautious:
→ A potential cut in the dividend is now worrying investors and analysts.
→ EPS could fall significantly over the coming years.
→ Mobile competition remains high with prices reduced for theiPhone7.
→ A capital management program in FY17 will commence.
→ Hovering around an area of support.
The potency of the prior downtrend strongly suggested that the lower boundary of the trading range was going to come under pressure following our last review and in that regard we haven’t been disappointed. In fact, the lower boundary was overcome by the slimmest of margins although a few buyers did step up to the plate at those lower levels. There was even a decent increase in volume at the recent pivot lows just under $5.00 although once again momentum has run out of steam almost immediately. The difference in the retracement this time around, is that it doesn’t appear to be a corrective pattern with price heading down in a straight line movement off the late July high. As such, we have to be extremely cautious in regard to any sort of bounce lasting more than a few weeks. Although the line of support goes all the way back to 2007 it’s by no means a foregone conclusion that it’s going to hold.
Sentiment in the sector has taken a bit of a pounding recently and there’s no reason to suggest why it should suddenly take a turn for the better any time soon. Apart from the line of support as shown, there’s also a large expanding triangle to consider which has been forming since October of last year. This is quite a rare pattern but it needs watching carefully as a push beneath the lower boundary would be major reason for concern and portend another significant leg South. Should the recent pivot low at $4.92 be overcome then the lower trend line of the triangle is going to be within touching distance which means an inflection point will have been reached with potential bearish consequences to follow. It would take an immediate and impulsive push up through the recent pivot high at $5.22 to suggest a deeper retracement is going to be avoided although at this stage it isn’t looking likely.
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