Investors made little attempt to snap up Telstra stock on Friday, despite the severely depressed share price, signalling the telecommunications giant is in for a torrid time as it struggles to fill the $3 billion earnings gap left by the NBN.
Financial planners recommended investors reconsider their Telstra positions, particularly if the dividend was the sole reason they were holding shares in the company.
"The longer-term outlook for Telstra is not promising," said Giselle Roux, chief investment officer at Escala Partners in Melbourne.
Ms Roux recommended individual investors not holding Telstra shares purely for income sell and look elsewhere for growth opportunities. Even pure income investors needed to understand that the dividend was likely to be cut again.
"If you can afford to now, move on to something else that may grow the dividend," Ms Roux said, pointing to doubts hovering over Telstra's ability to maintain its premium pricing on mobile phones and the threats posed by expanding rival TPG.
"This is a utility at the end of the day and one without high profit margins they enjoyed for years," Ms Roux said.
Tony Davison of Henderson Maxwell was more upbeat, arguing that Telstra remained profitable and capable of supporting the reduced dividend.
"Longer term, the stock remains a worthy portfolio constituent. Once 5G technology emerges, Telstra is likely to benefit and will potentially allow the company, on the back of the technology, to leapfrog the NBN threat it currently faces," Mr Davison said.
The prospect of a 22?? dividend next year, cut down from 31??, resulted in investors wiping $5.5 billion off Telstra's value on Thursday, a sell-off that continued on Friday, albeit far less aggressively.
Shares clawed back 0.8 per cent to $3.90 on Friday, after tumbling more than 10 per cent on Thursday.
Telstra missed out on the "day-two bounce" that the likes of pizza group Domino's and property listings company REA Group enjoyed, after similarly dramatic sell-offs this week.
Domino's, which crashed 18.8 per cent after its result, managed to claw back 7 per cent the next day. And REA Group suffered a 6 per cent slump before regaining almost 3 per cent.
About 55 per cent of Telstra's share registry are retail investors, with professional money managers largely avoiding the stock.
"The reason professional investors stay away is mostly because of that high dividend yield and a lack of clarity around how much the NBN would impact the business," said Uday Cheruvu, portfolio manager at PM Capital.
"It could start to get interesting now the price has fallen, but there's still a way to go before the numbers bottom out. But still, we don't know if that earnings growth is substantial and it doesn't look like it's anywhere close to that."
A slew of analysts de-rated the stock on Friday. JPMorgan and New Street Research cut their ratings to "neutral" and Citi reiterated its "sell" position.
"We remain of the view that [the $3 billion earnings gap] won't be adequately covered especially as mobile competition intensifies," wrote David Kaynes, telecommunications analyst at Citi.
"The stock is now offering negative earnings growth across FY18-19 and a falling dividend per share, and we expect the stock to remain under significant pressure at current levels," Mr Kaynes said.
