Story of Four Australian Telecom stocks

Telstra Corporation Ltd

TLS Details

To benefit from recent ACCC’s draft decision on mobile roaming services: Recently, The Australian Competition and Consumer Commission (ACCC) has finalized its decision on the regulation of high-speed internet services supplied by non-NBN (National Broadband Network) fixed line networks. The networks largely supply high-speed internet services in new housing estates and apartment buildings in central city locations. In many areas, they supply internet services where the NBN does not offer services and provide customers in these areas with a limited choice of retailers of internet services. The major providers of these services are Telstra Corporation Ltd (ASX: TLS) (South Brisbane and Velocity Estates fiber networks), TPG Telecom Ltd (ASX:TPM), Vocus Group Ltd (ASX: VOC), LBN Co, Opticomm, and OPENetworks. The ACCC’s decision sets wholesale prices and other terms and conditions that are expected to provide customers with a larger number of retailers to choose from and deliver them better prices and services. In a change from the draft decision, the ACCC has permitted the non-NBN networks to pass on the Government’s proposed Regional Broadband Scheme (RBS) charge on their customer lines to help fund NBN Co’s supply of non-commercial regional fixed wireless and satellite services.

Telstra Corporation Limited (ASX: TLS) came under slight pressure with the regulations. However, its fiber networks are subject to different pricing arrangements due to the cost of separating the networks from Telstra’s legacy network systems and the prospect that the fiber networks may be transferred to NBN. On the other hand, the recent ACCC’s draft decision on mobile roaming services was considered as a positive and is not expected to affect TLS retail mobile prices to a significant extent. Further, it will help TLS keep its competitors at bay from the use of TLS’ infrastructure. Given the prospects, we maintain a “Buy” recommendation on the stock at the current price of $ 4.45

TPG Telecom Ltd

TPM Details

Expanding network services: Recently, TPG Telecom Limited (ASX: TPM) had successfully raised approximately A$400.3 million at A$5.25 per share through the retail entitlement offer and the institutional offer for the network expansion and repayment of debt. Notably, with the recent winning of a bid for 2x10MHz of mobile spectrum in the 700MHz band, the company emerged as a competitor in the mobile space. Further, the company has reaffirmed the underlying EBITDA of $820 to $830 million for FY 17. Although, the TPM stock has fallen 53.7% in the last twelve months as on June 06, 2017 and is trading at 52-week low levels. We give a “Buy” recommendation on the stock at the current price of $ 5.59

Amaysim Australia Ltd 

AYS Details

Improving operating leverage: Acquisition of Click Energy is a significant milestone in the transformation of company as it increases connectivity to the Australian household and complement its existing suite of mobile and broadband products. Click is a Melbourne based online energy retailer offering electricity in four states (Victoria, NSW, Queensland and South Australia) and gas in Victoria and NSW. Further, Click’s business model is strongly aligned with Amaysim as it helps in significantly enhancing scale, operating leverage and cross-selling by adding an additional 136,000 households to AYS existing customer base of ~600,000. Over the next few years, Amaysim intends to reach ~300,000 homes with multiple products (NBN, mobile and energy) with a possible average household ARPU (average revenue per user) of $200/month. Acquisition is expected to generate annual pre-tax cost synergies of approximately $5 million by the end of FY18F. These cost synergies are primarily expected to be generated from efficiencies around customer service, IT systems and processes. The acquisition is expected to be 20%+ EPS accretive for Amaysim shareholders on an underlying NPATA basis in the FY2018, and further, AYS has revised the FY 17 guidance (upwards) to include 2-months contribution from Click. Meanwhile, AYS stock has moved up by 9% in the last three months as on June 06, 2017. We give a “Buy” recommendation on the stock at the current price of $ 1.93

 Vocus Group Ltd

VOC

Market conditions remains elusive: Vocus Group Ltd (ASX: VOC) revised its FY17 guidance with revenue now expected to be over $1.8bn compared to guidance of approximately $1.9bn, while underlying EBITDA is now estimated to be $365-375m compared to guidance of $430-450m. Further, underlying NPAT is forecasted to be in the range of approximately $160-165m compared to guidance of $205-215m. Moreover, based on the FY17 revised earnings forecast, the net debt at June 30, 2017 is expected to be $1-1.1bn. Further, the cumulative run rate of acquisition synergies expected to reach $57m in line with guidance. VOC continues to expect FY17 core capital expenditure (pre-ASC payments but inclusive of IRU payments) to be ~$182m. The group expressed about it realizing the financial metrics’ actual forecast to be lower than earlier guidance on May 02, 2017, based on a review of the trading inputs. On the other hand, the ongoing rollout of the NBN is creating headwinds for many telecommunication providers. VOC stock has fallen 68.5% in the twelve months as on June 06, 2017, placing them at lower levels, however, in the last one month, the stock has moved up 22% with slight improvement in sentiments.We give a “Hold” recommendation on the stock at the current price of $ 2.86

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