TPG Telecom Ltd (ASX: TPM) has reported its FY19 result to investors, is its share price a buy?
TPG Telecom is one of Australia’s largest broadband and mobile phone providers, with around 2 million broadband subscribers. In 2018, TPG planned to merge with the owner of Vodafone Australia, Hutchison Telecommunications (ASX: HTA), in a potential $15 billion deal, with legal proceedings related to the merger ongoing.
TPG’s FY19 Result
TPG reported that its revenue fell less than 1% to $2.48 billion. The consumer segment saw a slight increase of corporate revenue to $758.4 million and the consumer segment suffered a $23 million decline in revenue to $1.719 billion.
Reported EBITDA (click here to learn what EBITDA means) before the impairment dropped 2% to $809.4 million.
Business as usual (BAU) EBITDA fell by less than 1% to $823.8 million. The company had provided BAU EBITDA guidance for FY19 of $800 million to $820 million, so it beat its own guidance on this metric.
TPG’s EBITDA continues to be affected by the NBN. A reduction of profit margins from the shift from DSL to the NBN caused a decline of $47 million and iiNet home phone saw a $14 million decrease, but other growth added $57 million for its EBITDA.
That other growth was from the corporate division (including an uplift in contribution from the VHA fibre contract) and the continued cost cutting and efficiency improvement across the business.
Reported profit dropped 56% to $173.8 million largely due to the $165.7 million impairment hit from the decision to cease its Australian mobile network build when Australian telcos were banned from working with Huawei equipment for 5G mobile networks.
Underlying profit dropped by 13% to $376.2 million after commencing the amortisation of its Australian spectrum licences.
TPG Dividend
The TPG Board has declared a final dividend of 2 cents per share, bringing the total year dividend to 4 cents per share – the same as last year.
Is The TPG Share Price A Buy?
TPG continues to develop its network in Singapore, where its free service trial has been getting positive feedback and is up to 300,000 users.
In FY20 TPG expects the worst of the NBN financial impacts as customers move over. This, plus home phone customers, is expected to be a $85 million hit. Higher NBN wholesale costs is also expected to hurt profit by $25 million.
By the end of FY20, less than 15% of TPG’s customer base is expected to be on the old broadband.
Whilst TPG expects growth in the corporate division and other savings, BAU EBITDA is expected to be in the range of $735 million to $750 million.
It’s hard to say whether TPG is a buy or not on today’s result without knowing what the Vodafone merger decision will be. So it may be best to wait until that is known and instead think about the growth stocks in the free report below.
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