TPG Telecom Limited

Understanding TPM’s Key Metrics for 1H FY 2019: TPG Telecom Limited (ASX: TPM) had recently announced the results for the half-year ended 31 January 2019. The company’s earnings before interest, tax, depreciation and amortisation before impairment amounted to $420.0m while its net profit after tax stood at $46.9 million. The company stated that it is important to recognise impairment expense amounting to $227.4 million in the results for 1H19 because of its decision to cease rollout of Australian mobile network.

Underlying EBITDA (Source: Company Reports)

The company’s total capital expenditure for 1H FY 2019 amounted to $556.7 million which includes $352.4 million instalment for 2x10MHz of 700MHz spectrum acquired at auction in 2017, $66.1 million of deployments towards (now ceased) Australian mobile network build. However, it also includes $39.8 million towards Singapore mobile network build. The company’s Board had declared a fully franked interim dividend for FY 2019 which stood at 2.0 cents per share and in line with last year. It has a payable date of 21 May 2019 for the shareholders on the register on 16 April 2019.

A Look at Guidance for FY 2019: The directors of TPG Telecom Limited have reaffirmed the guidance which was provided in September 2018 for (Business as usual) BAU EBITDA for the full year FY19 and added that this would be between $800 million-820 million and BAU capital expenditure of between $180 million- 220 million.At the end of 1H FY 2019, TPG Telecom had net debt (excluding outstanding spectrum liabilities) amounting to $1,567.6 million representing leverage ratio of ~1.85x underlying annualised EBITDA.

Stock Recommendation: The stock of TPG Telecom has delivered decent returns from the past few months as, in the span of previous three months it gave 7.69% return while, in the time frame of previous one month, it delivered 3.78% return which can be considered decent considering the challenging market conditions. Also, from the valuations perspective, the company seems to be fairly valued as its P/B ratio stood at 2.4x which is in line with the industry median (Telecommunication Services) of 2.4x. Therefore, considering the aforesaid facts, we maintain our “Hold” recommendation at the current market price of A$6.850 per share (down 4.062% on 20 March 2019).
 

Vocus Group Limited

VOC Responses to Media Speculation: Vocus Group Limited (ASX: VOC) had recently responded to the media speculation with respect to the potential equity raising. The company refinanced the debt facility in June 2018 and as mentioned in interim results presentation on February 27, 2019, the net debt increased during H1 FY19 after financing Australia Singapore Cable. The company’s board and management happen to be comfortable with its debt position. The company’s revenue increased marginally in 1H FY 2019 as compared to previous corresponding period (or pcp) and stood at $974.2 million because of growth in Vocus Networks, however, got offset by the falling revenues in Vocus Retail.


Key Financial Metrics (Source: Company Reports)

What to Expect From VOC: Vocus Group has reiterated the expectations for FY 2019 and stated that the underlying EBITDA is anticipated to be in the range of $350 million-$370 million. The company’s priority revolves around maximizing the profitable growth within the core enterprise, government & wholesale markets in Australia and New Zealand. The company had stated that the depreciation and amortisation is expected to be between $160 million-$165 million in FY 2019.

Stock Recommendation: The stock of Vocus Group has delivered the return of 12.74% in the past six months while, on the YTD basis, it posted the return of 15.31%. The company had stated that, in order to be sustainable, the growth needs to be managed with the help of available resources and cost and capex efficiency need to be driven with the help of alignment to the strategy.

Considering the above factors along with decent outlook, we maintain our “Hold” recommendation on the stock at the current market price of A$3.530 per share (down 0.282% on 20 March 2019).
 

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