TPG dials up profits

Telco records 41% increase in net profit

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published March 19, 2013 3:33 pm AEDT

Internet service provider TPG Telecom Limited (ASX: TPM) has today announced a 41% increase in profit to $78.3 million for the six months to January 2013.

Impressively, revenues only rose by 10%, but adjusted earnings per share climbed by 26% over the previous period to 9.9 cents, showing that once telecommunications providers have their infrastructure in place, increases in revenue virtually drop through to the bottom line.

TPG also declared an interim fully franked dividend of 3.5 cents.

Broadband subscribers increased by 36,000 during the half year, close to double the growth in the same period last year and taking the total number of subscribers to over 630,000. Mobile subscribers climbed by 48,000 during the half, compared to 54,000 for the whole of the 2012 financial year. TPG also expanded its fibre footprint by 766km, which now exceeds 3,800 km.

Cash flows were strong, with operating cash flow coming in at $119 million, while free cash flow (excluding capital expenditure) came in at $86 million, which allowed TPG to repay debt of $54 million. Total gross debt now stands at $95 million, which appears fairly inconsequential, if the company can keep delivering growing free cash flow.

In further pleasing news for shareholders, average revenue per subscriber continues to grow.

Guidance for full year earnings before interest, tax, depreciation and amortisation (EBITDA) has been raised from $263-$273 million to $285-$290 million.

Foolish takeaway

TPG has grown from a small internet service provider into our third largest listed telecommunications company, with a market cap of over $2 billion, behind Telstra Corporation (ASX: TLS) and Optus – owned by Singapore Telecommunications (ASX: SGT), and ahead of competitor iiNet Limited (ASX: IIN).

No doubt TPG's growth has been assisted to some extent by being in the right place at the right time – by taking advantage of the rise of smartphones and the take-up of ADSL and ADSL 2+ fixed broadband. Whether it can keep growing at historical rates remains to be seen.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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