Deutsche Bank: Expect a share buy-back from Telstra’s $2bn Autohome sell off

Photo: Kevin Frayer/Getty Images

At least part of the $US1.6 billion ($A2.1 billion) Telstra is going to receive for its 47.7% stake in China car site Autohome is expected to go back to shareholders, possibly in the form of a share buy-back.

The sale to Ping An Insurance Group for $US29.55 a share adds considerably to Telstra’s cash war chest. The telco expects to book an accounting gain of about $A1.8 billion

Telstra has indicated is will take a balanced approach to the use of funds.

And Deutsche Bank, in a note to clients, says capital management is likely.

“Given the company has a low franking credit balance, we expect any capital return would be in the form of a buy-back,” Deutsche Bank says.

However, Deutsche Bank expects only a portion of that capital, $1 billion to $1.5 billion, to be returned to shareholders.

Telstra will want to retain flexibility for making investments in Asia and for possible support of the Australian business which faces increased competition and has had recent network issues.

Telstra bought a majority stake in Autohome in 2008 and the business was listed on Wall Street in 2013. Autohome is a leading online automobile advertising platform and automotive information site in China.

Australia’s largest telco is retaining a 6.5% interest.

“Autohome has been an excellent investment for Telstra and demonstrates the opportunities that exist in the Asia-Pacific region,” says CEO Andrew Penn.

“Asia remains one of the key elements of our growth strategy. We continue to grow our enterprise services businesses in the region with strong consolidation opportunities in our Pacnet business, joint venture in Indonesia and the exploration of future growth opportunities.”

Telstra shares are up 1.9% to $5.34.