Telecom NZ recently demerged into 2 companies. The demerger created two independent listed entities. The new Telecom & Chorus. Both are now 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.

In the demerger current Telecom investors received 1 Chorus share for each 5 existing Telecom shares.

Chorus shares began trading on the NZX on 23rd November closing at $3.21 on the first day and subsequently have traded as high as $3.31.

At the time of the demerger we knew Chorus would not be included in the MSCI World Index (as Telecom was). We thought this would be likely to trigger forced selling from shareholders who track the MSCI World Index and this would likely create a one-off opportunity. As it happened demand exceeded supply and the initial price was higher than we expected.

On the 2 December S&P Indices announced changes to the S&P/ASX 200 Index as a result of its quarterly review. The changes will see Chorus removed from the S&P/ASX 200 Index effective December 16 after the close of trading.

It appears that this announcement may have been the catalysts for a sell off in Chorus and the shares have traded down to as low as $2.95 recovering to $3.03 yesterday.

With the Chorus share price down at 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.