The first incumbent telco in the world to voluntarily split

This week Money asks Roger Montgomery for a hot stock pick - Chorus Limited (ASX:CNU)

Key statistics:

26/01/16 closing share price: $3.390

52 week high: $3.790 Most recent dividend: - Annual dividend yield: Franking: -

In November 2011 Telecom New Zealand became the first incumbent telco in the world to voluntarily split, creating Chorus Limited (ASX: CNU) - the owner of New Zealand's existing copper telecommunications network, and Spark Limited (SPK) - the mobile network, and retail business operator. Chorus was selected to build the majority of the NZ government's ultrafast broadband (UFB) network.

In December 2015, the share price improved when the New Zealand Commerce Commission announced an improvement to regulated prices for wholesale access to Chorus' copper network. In summary, the final pricing decision was a significant (and somewhat unexpected) improvement over the interim decision, resulting in meaningful upgrades to consensus earnings forecasts. Chorus issued updated FY16 EBITDA guidance of NZ$580-$600 million, which compared with the then current consensus of NZ$569.5 million.

The improved financial position also provided flexibility in respect of discretionary capital expenditure (which when profitable adds meaningfully to intrinsic value) and it potentially provides for the reinstatement of dividends. An update on these matters is expected at the half-year results in February.

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