At the current share price, is TPG Telecom Ltd (ASX: TPM) the best defensive share in the S&P/ASX 200 Index (ASX: XJO)?
TPG has become a major telecommunications company with its low-cost offering being attractive to households and businesses. Acquisitions of other telcos like iiNet also helped accelerate its growth strategy.
Is it defensive?
'Utilities' have a reputation for being defensive. Users have to keep paying their bill if they want to use the internet. Thankfully it's such a low cost, relative to a household's budget, that the internet is going to be one of the things that people want to utilise the most during this period.
If you're locked down in your house then some of the main things you might want to do like watching Netflix or video calling family & friends require the internet to be on.
Many of the businesses that use TPG's services will also need to keep the connection on as well, though there's a bit less certainty in this area with how hard business has been hit.
In times like this I think TPG is one of the most likely ASX 200 businesses to retain most of its customer revenue.
Is it a buy?
I prefer the idea of buying shares of TPG compared to Telstra Corporation Ltd (ASX: TLS) because of its plan to merge with Vodafone Australia which offers significant medium-term synergy potential. The combined business will have reduced costs, won't have to build two 5G networks and can cross-sell to the combined customer bases – TPG is strong in the home internet division whereas Vodafone's strength is mobile.
Another benefit will be that after the businesses are combined it will be able to pay larger dividends to shareholders.
However, the TPG share price hasn't fallen much compared to many other ASX shares during this period, it's only down around 10%, so the valuation hasn't improved as much as with other shares.
Foolish takeaway
The NBN is still going to be a problem for TPG, so it's not as though is clear skies from here. I think TPG has a promising future and I wouldn't mind owning a few shares today, but I think there are even better ideas out there worth buying on the ASX.
