Is the TPG share price a buy before the Vodafone merger decision?

Is the TPG Telecom Ltd (ASX:TPM) share price a buy before the Vodafone Australia merger decision is announced?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the TPG Telecom Ltd (ASX: TPM) share price a buy before the merger decision is announced? 

As you may know, TPG is in the process of trying to merge with Vodafone Australia so that they can combine forces to take on Telstra Corporation Ltd (ASX: TLS) and Optus.  

It has been almost a year and a half since TPG first announced that it wanted to join with Vodafone Australia, but the ACCC decided it would be too detrimental to competition to allow them to merge. The thinking is that as a separate business, TPG must rollout its own mobile network to remain competitive in the future and telco customers would be better off for there to be four large players rather than three.  

TPG said that it won't do its own mobile network, particularly because the federal government blocked it from using equipment provided by Chinese company Huawei which meant all the money and time spent on that partnership had essentially been wasted.  

Many market commentators now think that the decision will go TPG's way. Is the share price a buy in that case? 

Well, after the merger plan was announced the TPG share price rose to around $8.60. Assuming investors are still as excited by the idea it could mean upside of over 20% for the TPG share price if the merger is approved. Plus, the merger is expected to lead to stronger earnings and high dividends from the combined business. 

There's a fair chance that the ACCC decision will be reversed, however it's a flip of the coin.  

If the decision goes against TPG then it's stuck with a low-margin NBN business, although it does have a good corporate segment.  

Foolish takeaway 

TPG is currently trading at 22x FY20's estimated earnings. Buying today is too much of a roll of the dice for me. Most investing isn't gambling, but it would be a bit of punt buying today – I'd rather wait until the decision is known one way or the other. 

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Defensive Shares

piggy bank at end of winding road
Defensive Shares

3 safer ASX shares Australian investors can rely on in November

Worried about the markets? Check out these defensive stocks.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Blue Chip Shares

3 blue-chip ASX shares I think are so safe you could hold them forever

No shares are 'safe', but some are safer than others.

Read more »

Two smiling work colleagues discuss an investment or business plan at their office.
Defensive Shares

Why I'd buy these top defensive ASX shares before Christmas

These stocks could be compelling picks in the next few months.

Read more »

rising asx share price represented by man with arms raised against blackboard featuring images of dollar notes
Defensive Shares

I'll be investing $5,000 in this defensive ASX stock following its first-class result

This is one ASX share that has products customers can't seem to live without...

Read more »

Two mature women learn karate for self defence.
Defensive Shares

2 defensive ASX shares for lower-risk investors

I think any investor can comfortably add these two shares to a portfolio today...

Read more »

Man drinking from a bottle sitting on a floating ring in the middle of a harbour going nowhere.
Defensive Shares

2 ASX shares to confidently buy now and hold forever

Long-term thinking is the key with these two ASX names.

Read more »

Two mature women learn karate for self defence.
Defensive Shares

2 recession-proof ASX shares to buy in August

These stocks could be two of the most defensive on the ASX.

Read more »

a woman pushes a man standing in a shopping trolley pointing ahead far off into the distance.
Defensive Shares

1 reliable ASX stock I'd be as happy as Larry to hold through a recession

Here's my pick for a recession-resistant ASX share to buy today.

Read more »