Investors have reacted positively to TPG Telecom Ltd's (ASX: TPM) interim profit results, bidding the telecommunications stock as much as 5.5% higher earlier in the session. Although it has retreated marginally since, it is still trading 2.4% higher at $9.04 per share.
So What: This morning, TPG Telecom reported an 18% increase in net profit after tax (NPAT) to $106.7 million, which it achieved on the back of a 59% lift in revenues to $627.3 million. Through the period, the telco added 38,000 broadband subscribers (giving it a total of 786,000) while it also increased its dividend by 22% to 5.5 cents per share, fully franked.
To top off its remarkable first-half, it also increased its full-year EBITDA (earnings before interest, tax, depreciation and amortisation) guidance to between $480-483 million, an increase of more than 5% on its previous guidance.
Given the strength of TPG Telecom's first-half results, investors could be wondering why the market hasn't reacted even more positively. It's important to remember that TPG Telecom's shares have already rallied over the last fortnight in response to its planned acquisition of iiNet Limited (ASX: IIN) which, if completed successfully, could provide enormous synergies for the business.
Since 12 March, the shares have already risen almost 17% while there is no guarantee the deal will go through at TPG's proposed price ($8.60 per iiNet share). As such, it shouldn't come as too much of a surprise that the market didn't react more strongly to today's results.
Now What: While the stock might appear expensive at its current price, TPG Telecom represents an excellent business and will only improve if the planned acquisition of iiNet does receive approval. As such, TPG Telecom is presenting as a very reasonable buy and at very least deserves a position on your watchlist.
