TPG Telecom Limited

ASX code: TPM www.tpg.com.au
Image shows a line graph with a title “TPG Telecom Limited.” Subtitles below the graph are ASX code: TPM and followed by a website: www.tpg.com.au. X-y line graph, in which x-axis shows years (2016--2019) and y-axis shows share values in dollars. The highest peak is seen around the middle of 2016 and the lowest point lies in the second half of year 2017.
Share price ($)   6.30
12-month high ($)   8.78
12-month low ($)   5.94
Market capitalisation ($mn)   5845.2
Price-to-NTA-per-share ratio   13.8
5-year share price return (% p.a.)   2.6
Dividend reinvestment plan   No
Sector: Communication services Company Sector
Price/earnings ratio (times) 14.7 17.2
Dividend yield (%) 0.6 3.8

Sydney company TPG Telecom was founded in 1986 as Total Peripherals Group, a supplier of computers and electronic equipment. It later moved into telecommunications services, and has grown through merger and acquisition to become a major internet service provider, particularly since the 2015 acquisition of iiNet. It also offers a full range of communications services to residential users, small and medium enterprises, government, large corporations and wholesale customers. It operates telephone exchanges across Australia, and owns the international PPC-1 submarine cable connecting Australia and Guam, with onward connectivity to Asia and the US. It has launched a mobile phone service in Singapore. Washington H. Soul Pattinson holds 25 per cent of the equity. TPG has announced plans to merge with Vodaphone Hutchison Australia.

Latest business results (January 2019, half year)

Strong corporate business helped TPG to a modest rise in profits. In particular, the company benefited from a significant increase in the contribution from its contract to provide fibre services to Vodaphone. Increasingly, this business is shifting to TPG's own fibre infrastructure, which has led to a substantial boost to margins. By contrast, consumer business was hurt by the continuing National Broadband Network rollout, which has led to declining home phone voice revenue and to broadband gross margin erosion. The company has announced that it will cease the rollout of its mobile network in Australia, due to government restrictions — on national security grounds — on the use of equipment from Chinese company Huawei.

Outlook

In August 2018 TPG announced that it has reached agreement on a $15 billion merger with rival telecommunications giant Vodaphone Hutchison Australia. This will create a third major telecommunications company in Australia, after Telstra and Optus, with annual revenues of more than $6 billion and a base of more than eight million customers. TPG shareholders will own 49.9 per cent of the new merged company, with Vodaphone Hutchison Australia shareholders owning the remaining 50.1 per cent. The new company will continue to operate under the name TPG Telecom, and is expected to hold a national market share of around 20 per cent for mobile phones and 22 per cent for fixed line phones. Before the merger TPG will divest itself of its Singapore mobile network. However, in May 2019 the Australian Competition and Consumer Commission (ACCC) announced that it opposes the merger. Consequently, TPG and Vodaphone Hutchison have initiated proceedings in the Federal Court of Australia, seeking to overturn the ACCC decision.

Year to 31 July 2017 2018
Revenues ($mn) 2 490.7 2 495.2
EBIT ($mn) 646.4 598.2
EBIT margin (%) 26.0 24.0
Profit before tax ($mn) 595.5 563.8
Profit after tax ($mn) 413.8 396.9
Earnings per share (c) 47.88 42.85
Cash flow per share (c) 76.15 69.08
Dividend (c) 10 4
  Percentage franked 100 100
Interest cover (times) 12.7 17.4
Return on equity (%) 19.9 15.3
Half year to 31 January 2018 2019
Revenues ($mn) 1 254.6 1 235.8
Profit before tax ($mn) 279.5 297.7
Profit after tax ($mn) 217.7 225.2
Earnings per share (c) 23.52 24.27
Dividend (c) 2 2
  Percentage franked 100 100
Net tangible assets per share ($) ~ 0.46
Debt-to-equity ratio (%) 53.1 55.0
Current ratio 0.3 0.2