Market leader Telecom is forecast to deliver about a 45% decline in after-tax profit as it begins rebuilding itself and setting the foundation for its new mobile network, when it reports its first-quarter result tomorrow.
Broker Forsyth Barr is predicting a 46.4% decline in after-tax profit from $224 million last year to $120 million, while ABN Amro Craigs forecasts a 45.5% decline to $123 million.
For the first time, Telecom will report its six split divisions separately: retail, Gen-I, Chorus, wholesale, technical and share support, and corporate.
During the past year, its share price hit a high of $4.46 in December and low of $2.21 at the end of October, shedding about 50% of its overall value during that period.
Telecom has lowered its after-tax forecast three times during the past six months.
Forsyth Barr maintains a "hold" recommendation on Telecom' stock with a 12-month price target of $3.86 while ABN Amro Craigs maintains a "hold" recommendation on Telecom' stock with a 12-month price target of $2.25.
Telecom recently announced a $574 million investment in its new W850 mobile network during the next two years, but this is expected to have some negative effect on its share price, and possibly affect dividends.
The wideband CDMA technology, using a frequency of 850MHz, would have a phased launch from November with the start of inbound roaming services, as well as a pilot programme with a full service launch by June next year.
Forsyth Barr investment adviser Ken Lister said Telecom faced a two- to three-year "profit trough", with establishing its new mobile network and rebuilding customer preference and any catalyst to fire its share price was "likely to be a year or more away".
ABN Amro Craigs broker Chris Timms said a crucial element of Friday's report for shareholders would be its plans for dividends in the future, which have had a 10.2% yield, as there was no compulsion to stick with the company if dividend were cut.
"Telecom have a massive capital expenditure programme in place. We doubt the first or second quarter of 2009 will herald any significant positive share price catalysts," he said.
"We are expecting its share price to languish, until Telecom can rebuild itself and show a turnaround [in June 2009]."
He expected Telecom's share price to remain muted until the W-850 was implemented in June next year.
However, shareholders would be scrutinising beforehand whether the new service could be delivered on time and on budget.
"There's a saying - leading edge technology is sometimes known as bleeding edge, if they get it wrong," he said.
Telecom was competing with "aggressive fast-moving companies snapping" at many technology changes on offer, he said.
Mr Lister's and Mr Timms' financial disclosure documents are available on request.
