This morning TPG Telecom Ltd (ASX: TPM) reported its half-year results for the period ending January 31 2018. Below is a summary of the results with comparisons to the prior corresponding half year.
- Net profit after tax of $46.9m, down 76% when including $227.6m impairment of mobile network build out
- Normalised net profit of $225.7m, up 3.2%
- Revenue down 1.5% to $1,235.8m
- Underlying EBITDA of $424.4m, up 2.8%
- Underlying earnings per share of 24.3c, up 3.3%
- Interim dividend of 2cps, flat
- $24.8m gross profit decline in NBN-facing consumer operations
- Corporate EBITDA of $182.5m, up $23.8m
- Net debt of $1,567.6m on 1.85x annualised underlying EBITDA
- Guidance for 'business as usual' full year EBITDA between $800m – $820m
As we can see this is another typically solid year of operating performance from TPG with its dark fibre enterprise-facing corporate internet services business continuing to grow well, while its home broadband business is wrecked by the government's NBN network.
In fairness TPG has been dealt a terrible head by the government first with its NBN network and second with the decision of the statutory regulator the ACCC to initially reject its proposed merger with Vodafone Australia on spurious grounds.
It's possible these could be TPG's last results as an independent listed company if it can persuade the ACCC to approve its merger by this May, although this looks a 50:50 shot at best even after TPG's Machiavellian CEO, David Teoh, announced the group would abandon its mobile network building plans due to the government's ban on using Huawei equipment.
Surprisingly, the ACCC knocked back the Vodafone merger on the grounds it would prevent TPG becoming an independent mobile challenger to Telstra Corporation Ltd (ASX: TLS), Optus and even Vodafone itself.
However, with its existing debt and the giant multi-billion dollar sums required to build out a credible challenger network, TPG never looked likely to be a serious independent challenger to Telstra for example.
For full disclosure purposes I recently sold around half my stake in TPG as a rejection of the merger would leave TPG in trouble and likely lead to a radical strategy shift from the business.
However, it's possible that even if the ACCC rejects the merger then TPG could apply to have the ruling thrown out by the courts on a number of different grounds around the regulator's interpretation or application of the law.
Should you buy?
I expect the price is likely to drift sideways until the ACCC's verdict is delivered in May, with an approval likely to send the stock flying higher, not least because of the prospect of a substantial special dividend being on the table for TPG shareholders.
However, if its rejected TPG faces problems, as such I wouldn't suggest buying today unless you're gripped with an evangelical certainty that the merger will get over the line.
