The never-ending growth story that is TPG Telecom Ltd (ASX: TPM) today achieved yet another record profit result for shareholders.
In the year ended 31 July 2015, TPG achieved meaningful increases across a number of important financial metrics, compared to its 2014 financial year (FY14), including:
- Revenue up 31% to $1,270.6 million
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 33% to $484.5 million
- Net profit after tax up 31% to $224.1 million
- Earnings per share up 31% to 28.2 cents
- Dividends per share up 26.3% to 6.0 cents per share
- Full-year distributions up 24.3% to 11.5 cents per share
As a testament to the management and strategy of TPG, the latest annual profit results mark the seventh consecutive year of growth for the telecommunications heavyweight.
Digging a little further into the result, and stripping away irregular items in FY14, TPG's Consumer Division experienced EBITDA growth of 18.5% driven by organic broadband subscriber growth and an increased contribution per subscriber.
TPG's Corporate Division reported 52.4% EBITDA growth, to $242.3 million. While much of the growth impact is attributable to the AAPT acquisition, which has now been integrated into the Group for more than one full financial year, TPG says a sizable portion can also be credited to solid organic growth.
Free cash flow, by my calculations, was $112 million. This is a strong result considering the number of acquisitions and investments the group undertook during the period.
However, that figure excludes the $1,484.7 million acquisition of key rival, iiNet Limited, which was completed on 7 September 2015. To facilitate the very large acquisition, TPG issued roughly 23 million shares (worth $211 million) and has revised its debt agreements with a syndicate of banks totalling $1,960 million.
Given that the acquisition is meaningful to TPG, yet has only recently been settled, TPG says it anticipates continuing organic growth in FY16. However, Executive Chairman, David Teoh, added, "it is not yet possible to forecast with sufficient certainty the likely financial results for the combined group for the year ahead and, therefore, no specific guidance is yet provided for FY16."
Should you buy TPG Telecom shares?
Within the first hour of ASX trading this morning, TPG shares were trending firmly higher. Clearly, the market appeared impressed by the telco's results – despite narrowly missing consensus analyst forecasts.
The positive movement also comes despite TPG shares trading on a price-earnings ratio of 36x and dividend yield of just 1%. That compares to S&P/ASX 200 (ASX: XJO) (Index: ^AXJO) average P/E of 15x and dividend yield of 4.8%.
Personally, I think TPG shares are a little expensive, so unless you're investing for the long-term, I'd suggest keeping it on your watchlist, for now. Rivals M2 Group Ltd (ASX: MTU) and Vocus Communications Limited (ASX: VOC) are other — notably cheaper — companies operating in the telecommunications space.
