There is quite a lot of debate about whether Telstra Corporation Ltd (ASX: TLS) is a buy or not at today's price. Except for this year, there have only been two short periods when the share price was lower than it is today.
Top fund managers Matt Williams and Emma Goodsell at Airlie Funds Management have also had their say on the telco industry. They think it would actually be better to buy TPG Telecom Ltd (ASX: TPM). The AFR quoted the investment team at an investor presentation.
Firstly, Ms Goodsell said that Airlie had avoided Telstra because it was spending $68 on capital expenditure and $52 on dividends for every $100 of cash inflows, plus net debt to earnings was likely to increase in FY19.
The NBN payments also appear to make Telstra look cheaper, but excluding those one-off payments Telstra is actually trading at fair value compared to similar global businesses. The upcoming launch of TPG mobile could increase the price war.
TPG looks more attractive to Airlie, although the fund doesn't own it, because it is founder-led by David Teoh who owns just over a third of the business. This setup is good because it means the business is focused on the long-term and management won't take large risks just to boost their pay packet.
However, Mr Williams pointed to the fact that TPG has to outlay a large amount of capital in the 5G spectrum auction yet the balance sheet doesn't have optionality as it is already spending a lot of money on creating mobile networks in Australia and Singapore.
Foolish takeaway
Airlie thinks TPG could be a winner over the next five or ten years.
But it could be a bumpy ride in-between because of the NBN, competition and significant capital expenditure that TPG is making. I'm not directly investing in TPG at the moment, I'd rather get my exposure through Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
