Acquisitive telecom company TPG Telecom Ltd (ASX: TPM) ("TPG") released its annual results for 2016 to the market today.
Here's what you need to know:
- Revenue rose 88% to $2,388 million
- Net Profit After Tax (NPAT) rose 69% to $380 million
- Underlying* NPAT rose 46% to $361 million
- Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $775 million, at the top end of previous guidance
- Earning Per Share rose 61% to 45.3 cents (43.1 cents underlying)
- Dividends per share of 14.5 cents per share (~1.2% yield)
- Average Revenue Per User (ARPU) remained steady
- Very low levels of customer churn (~1.5%)
- Plans to expand in Singapore funded by existing cash flows
- Guidance for 6% improvement in underlying Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in 2017
- Guidance for capital expenditure of $370 million to $420 million in 2017, vs $281 million in 2016
*Underlying NPAT excludes one-off gains on sale as well as one-off acquisition costs incurred during the year
So What?
A strong result from TPG, predominantly driven by the iiNet acquisition which contributed the bulk of TPG's EBITDA increase. TPG itself reported much more modest, although still respectable, organic growth of around 10% each in its TPG Consumer and TPG/AAPT Corporate segments. This was partly offset by an insignificant decline in the mobile segment.
TPG managed to maintain its Net Promoter Score, which was an uninspiring ~35 in the consumer segments, but a solid 70 in both the iiNet and TPG Corporate businesses. Similar to the problems reported by Telstra Corporation Ltd (ASX: TLS) in its results, TPG appears to have room for improvement here. Churn remains very low at around 1.5%, significantly below Telstra's 10% – although this is due to Telstra's greater focus on mobile which TPG doesn't have.
Now What?
Heading into 2017, TPG has given guidance for a roughly 6% improvement in underlying EBITDA, from $775 million in 2016, to between $820 and $830 million in 2017. This excludes any losses that might be incurred by the expansion into Singapore, and is accompanied by a hefty uplift in capital expenditure for growth purposes. $72 million of this expenditure is earmarked for the spectrum acquisition in Singapore, while a further $50 million will be spent on other international capacity acquisitions.
When's TPG going to buy a mobile business?
There's been speculation in the market that TPG could buy a big Australian mobile provider – like Optus or Vodafone – and start competing with Telstra. This wasn't mentioned in the report, and it seems TPG is keen on sticking to its guns with network expansions in Singapore. This seems a more rational choice than targeting fickle mobile consumers and challenging the dominant Telstra.
Singapore comes with its own risks however, not least in that it is a competitive environment and a number of telecom companies must be viewing the densely populated, high-tech metropolis with avarice.
Is it a buy?
TPG shares took a hefty tumble at the open today, losing 20% in minutes as investors reacted to the news of higher capex and fairly unremarkable organic growth. I think the company probably had some expectation for further takeovers built into its share price and I wasn't surprised to see TPG fall today. However, now a full 20% cheaper than it was yesterday, I'd say the risk-reward tradeoff for TPG is much more appealing.
