Is the TPG (ASX:TPG) share price a buy today?

Is the TPG Telecom Ltd (ASX: TPG) share price a buy today? Here's a look at TPG compared to rival Telstra Corporation Ltd (ASX: TLS).

| More on:

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

The TPG Telecom Ltd (ASX: TPG) share price has gone off the ASX radar in the past few months, it seems. Backtrack to late June, and the imminent TPG/Vodafone merger was the talk of the ASX town. The old TPM-tickered TPG was about to join forces with Vodafone to form a newly merged telco. Investors were excited to see the fixed-line strength of TPG combined with the mobile reach of Vodafone's customer base. The spin-off of the old TPG's Singapore operations into Tuas Ltd (ASX: TUA) was also an exciting sidenote. In the 2 months leading up to the merger, TPM shares rose by more than 25%.

But since the merger came into effect, TPG shares have fallen off the radar. The TPG share price is down around 15% since 30 June, and the Tuas share price has offloaded more than 22%.

So what's going on? Is this a case of buyers' remorse?

wondering about asx share price represented by man surrounded by question marks

Image source: Getty Images

What does the TPG share price tell us?

It's hard to value TPG using traditional metrics like the price-to-earnings (P/E) ratio given the 'new TPG' has only been around for a few months now.

But let's look at some numbers anyway. On current prices, TPG is being valued at a market capitalisation of $14.1 billion.

In its half-year earnings report which TPG released to the market recently, the company told us that if the Vodafone merger had occurred on 1 January, revenues would have come in at $2.71 billion for the 6 months ending 30 June 2020, with earnings at $918 million. If we annualise TPG's earnings (which is a little bit shonky, I know), TPG comes in with a P/E ratio of 19.74. By comparison, rival Telstra Corporation Ltd (ASX: TLS) is currently being priced at a market capitalisation of $33.84 billion with full-year revenues of $23.71 billion and earnings of $8.9 billion, which gives Telstra a P/E ratio of 18.57.

That tells us that the market is more or less pricing these 2 companies at a similar level compared to their underlying earnings.

TPG or Telstra?

So why would an investor go for TPG over Telstra shares, for example? More growth? I happen to think Telstra's mobile network (the only division making telcos any money these days) is far superior to the new TPG's one and is likely to attract more customers when 5G technology comes into the mainstream.

More income? Although TPG shareholders were treated to a whopping special dividend of 51.6 cents per share on the completion of the merger, this was largely funded by debt. It is unclear what kinds of dividends the company will be paying going forward. It has got a high benchmark though — on current prices, Telstra's reaffirmed 16 cents per share gives the company a trailing yield of 5.65% today.

Foolish takeaway

Whilst I think TPG is a great business, I would prefer to invest in Telstra myself if I wanted exposure to an ASX telecom company. There are a few things that aren't really clear just yet for TPG, including a full-year set of numbers to analyse and any kind of dividend guidance. As such, I would go with the devil you know and stick with Telstra if you want in with this space.

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. 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 Technology Shares

A silhouette of a soldier flying a drone at sunset.
Broker Notes

The DroneShield share price has soared 266% in a year. Time to take profits?

A leading expert offers his outlook for DroneShield’s surging shares.

Read more »

A man sits in casual clothes in front of a computer amid graphic images of data superimposed on the image, as though he is engaged in IT or hacking activities.
Technology Shares

What are the 3 ASX technology shares Citi rates as a buy at the moment?

Recent sell-offs have these shares looking cheap.

Read more »

Business people discussing project on digital tablet.
Technology Shares

Are DroneShield shares good value? Yes or no

Let's see what one leading broker thinks of this high-flying stock.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Technology Shares

EOS shares tumble 8% as insider selling ramps up

EOS shares fall as insider selling weighs on sentiment.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Technology Shares

Should I buy this ASX 200 tech stock at a 52-week low?

Not every stock hitting a 52-week low is a bargain. But with strong growth and improving fundamentals, this may be…

Read more »

a man wearing spectacles has a satisfied look on his face as he appears within a graphic image of graphs, computer code and technology related symbols while he concentrates on a computer screen
Technology Shares

Are these the smartest ASX tech stocks to buy now with $2,000?

When high-quality tech stocks fall sharply, it can create opportunity.

Read more »

Green arrow going up on stock market chart, symbolising a rising share price.
Technology Shares

2 ASX tech shares that could double from here

Despite sharp recent falls, brokers continue to back these growth stocks.

Read more »

A young man talks tech on his phone while looking at a laptop with a financial graph superimposed across the image.
Technology Shares

Xero shares rise again. Is this the start of a turnaround?

Xero shares rise but remain down 30% in 2026.

Read more »