TPG Telecom Targets FY20 EBITDA of $750m as Vodafone Decision Looms

TPG Telecom Ltd (ASX: TPM) capped off a tough year featuring NBN impacts and regulatory hurdles to achieve a “respectable” result, according to TPG CEO David Teoh.

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 and due to be decided upon by February 2020.

Speaking at the TPG Telecom Annual General Meeting (AGM) today, Mr Teoh said two major regulatory hurdles impacted the business during the year.

The first was the Australian Government’s decision to block the use of 5G mobile networking equipment made by China’s Huawei. This meant the rollout of TPG’s mobile network — and expected upgrade to the faster 5G capability — “made no commercial sense”.

The other major headache for Teoh was the blocking of the TPG-Vodafone tie-up.

“Given our firm belief that the proposed merger would greatly enhance competition in the Australian telecommunications industry, the merger parties launched proceedings in the Federal Court seeking orders that the proposed merger will not, and is not likely to, substantially lessen competition,” Teoh explained.

TPG Telecom, which operates under its own name and iiNet, had some 1.93 million broadband subscribers in July 2019. Optus, owned by Singapore Telecommunications, and Telstra Corporation Ltd (ASX: TLS) are the two fiercest competitors in the space and control the lion’s share of subscribers. Meanwhile, Vodafone Australia rounds out the top three (with Optus and Telstra) in the mobiles marketplace.

The court is expected to deliver its judgment on the Vodafone-TPG deal by February 2020.

Outlook for 2020

Looking forward into the current financial year, Teoh expects the NBN to continue denting profit margins across the group as it seeks to standardise broadband internet connections for consumers and businesses. TPG expects a $75 million reduction in its business as usual ‘EBITDA’ in FY20, relative to FY19. The following video explains EBITDA:

Longer-term, post the impacts of the NBN rollout, Teoh said his company remains well-placed to cope with competition given its lean model.

“…we expect to be well positioned for growth once the headwinds subside following the end of the NBN rollout, with our lean cost structure enabling us to continue to be an effective competitor in residential broadband, our quality of service and fibre infrastructure supporting ongoing Corporate Division growth and an exciting greenfield opportunity in Singapore. “

TPG Telecom shares have tread water over the past year despite a rise in the broader Australian sharemarket.