The TPG Telecom Ltd (ASX: TPG) share price will be one to watch this morning.
This follows the release of the telco giant's first half year results since its merger with Vodafone Australia.
TPG share price on watch after delivering strong first half growth
- Revenue increased 71% to $2,630 million
- EBITDA up 67% to $886 million
- Net profit after tax down 8% to $76 million
- Fully franked interim dividend of 8 cents per share
What happened in FY 2021 for TPG?
As I mentioned above, this was effectively the first half year result the company has released since its merger with Vodafone Australia. The prior corresponding period included only four days' contribution compared to a full six months in the first half of FY 2021. This ultimately led to TPG reporting a 71% increase in revenue to $2,630 million.
And while things were not as positive on the bottom line, this was largely due to a one-off non-cash benefit of $226 million in the prior corresponding period. This led to net profit after tax falling 8% to $76 million during the first half of FY 2021. A better reflection of its performance will be its EBITDA metric. This increased 67% to $886 million, which could bode well for the TPG share price today.
During the first half, TPG increased its overall broadband subscriber base by 23,000 to 2.2 million. However, due to the NBN rollout, the average number of DSL subscribers declined by 237,000 compared to the prior corresponding period. This caused a $23 million decline in gross profit as the average gross profit contribution from providing an NBN service was $16 per month lower than for a DSL service.
The company's mobile customer based declined during the half, but at a significantly reduced rate of decline compared to 2020. The company lost 136,000 mobile subscribers in the six months to 30 June 2021 compared to a decline of 737,000 in 2020. Reduced numbers of international visitors and temporary visa holders due to COVID continued to be a major driver of these customer number declines.
What did management say?
TPG's Chief Executive Officer, Iñaki Berroeta, was pleased with the half considering the challenges it faced.
He said: "The group's EBITDA result is pleasing and demonstrates a solid underlying performance achieved through the realisation of $38 million in merger cost synergies and strong commercial management."
"In an environment with continued headwinds from COVID-19, NBN margin erosion and the new RBS levy, and residual challenges from the merger delay and 5G vendor restrictions, we are performing well. Through the groundwork we have laid across the company over the past year since the merger, we are now in a stronger position to take advantage of our growth potential."
Potentially giving the TPG share price a lift was Mr Berroeta highlighting its infrastructure assets. There has been speculation that the company may follow the lead of Telstra Corporation Ltd (ASX: TLS) by trying to unlock value through asset sales.
He said: "With 7.5 million consumer and business services, the largest family of owned telco brands in Australia, and a valuable portfolio of infrastructure assets, there is enormous potential to drive greater shareholder returns and exceptional customer experiences."
What's next for TPG?
The good news for the TPG share price is that the company is entering the second half in a strengthened position following solid progress on integration activities and its strategic priorities.
It is on track to reach 85% 5G population coverage in ten of Australia's largest cities and regions by the end of the year. This is expected to support future growth in mobile and home wireless.
Management revealed its second half priorities. It explained: "The company's key strategic focus areas for the second half of 2021 are bringing more fixed customers onto its own infrastructure, lifting its impact in the enterprise and government market, improving mobile performance and achieving its $70 million merger cost synergy target for 2021."
No guidance has been provided for the full year.
TPG share price performance
The TPG share price is down a disappointing 7% year to date. This compares to a 32% gain by the shares of rival Telstra. Shareholders may be hoping this result is an inflection points for its shares.