As TPG Telecom Ltd (ASX: TPM) shares close in on $12 I'm sure many investors will wonder if they have missed the boat on this one. Especially with its shares changing hands at 29x forecast full year earnings.
Although this is a premium to its telecommunications industry rivals Telstra Corporation Ltd (ASX: TLS) and Vocus Communications Limited (ASX: VOC), I would say that it's about fair considering its strong growth prospects.
Although I like Telstra, I wouldn't be prepared to pay much more than 15x earnings for its shares due to its slowing growth. Vocus on the other hand is a growth machine and at 23x full year earnings could be classed as undervalued and worthy of a closer look.
So at the current price I would say TPG Telecom makes a great long-term investment. As I mentioned last week analysts at Citi recently upgraded the growing telco to a buy rating with a $14.50 price target on its shares. This price target implies potential upside of over 20% over the next 12 months.
The reason for Citi's bullish stance is largely down to its view that TPG Telecom will be better positioned to deal with the changing market dynamics after the NBN rollout evens the competitive landscape for broadband providers.
I would have to agree with Citi on this view and see it as a great reason to buy and hold its shares. Another reason in my opinion would be the potential growth of its mobile phone segment, which is the only area of the business that is currently letting it down in my opinion.
According to Kantar research TPG Telecom's share of the mobile market fell from 3.3% in June 2015 to just 2.8% in June of this year. If the company were to go ahead with the much-speculated Vodafone acquisition then it would boost its market share to 18%, putting it just behind second-placed Optus with its 21.8% share of the mobile market. Whilst this would come at a cost, it would make it a telco force to be reckoned with.
In addition to this the company has just announced plans to buy spectrum in Singapore, possibly putting it on the path to becoming an international mobile network operator.
All in all with such bright prospects at home and abroad, I believe TPG Telecom is a buy at the current price.
