Telecom NZ has recently demerged into 2 companies. The Demerger has created two independent listed entities. The new Telecom & Chorus. Both will be dual listed on the ASX and the NZX.

1. Chorus – The largest telecommunications infrastructure business in NZ with a current 93% market share of fixed line access market.
2. Telecom (post demerger) – NZ's leading telecommunications and IT services provider with #1 and # 2 market positions across all key markets.

Chorus shares begin trading on the NZX today, 23rd November. In the demerger current Telecom investors receive 1 Chorus share for each 5 existing Telecom shares. Chorus will not be included in the MSCI World Index. Chorus' exit from this index occurs on November 23rd which, we believe, will likely trigger forced selling from shareholders who track the MSCI World Index. In our view this potentially creates a one-off opportunity. If the Chorus share price sells off down to levels at or below $3.00, then the following benefits become available to buyers:

• Attractive Dividend Yield: at $3.00 a share Chorus would have a Gross dividend yield of 11.6%. At $2.70 a share Chorus would have a Gross dividend yield of 12.9%.
• Potential Capital Gain: on current research analysis our 12-month valuation for Chorus is $3.95 per share. However, we would not expect the valuation gap to close in the short term as it may take a while for the market to fully understand the model for Chorus' business.

In summary, this is a dividend yield play with the potential for some capital gains over time. The key risks are around line losses given high operating leverage of the Chorus business.

If this potential opportunity sounds like something you would be interested in ring Jonathan or Andrew on 07 578 3863 and we can discuss further. For your information the window when the opportunity may occur is in the last 30 minutes of trading before the market close today.