TPG Telecom Limited

TPG Telecom Limited (ASX:TPM) had some time back announced about a planned merger of equals with Vodafone Hutchison Australia (VHA) on August 30, 2018. The deal is expected to be completed in 2019.

Synergy benefits from the merger deal: Merger deal of around $15bn between TPG Telecom and Vodafone Australia, will give serious competition to peers Telstra and Optus. TPG and Vodafone together will have an extensive portfolio comprising of fixed and mobile products and will have the infrastructure required to provide faster services and competitive value propositions to customers. This merger will raise up Vodafone's 156 MHz of mobile spectrum with TPG's  40 MHz slice, which will help in bringing it close to Telstra's 217 MHz. The merger deal will bring together more than 27,000km of metropolitan and inter-capital fiber networks, along with a mobile network with over 5,000 sites. The synergy will form an organization with the efficient scale of operations and strong financial strength in future.

Financial performance:TPG Telecom reported NPAT degrowth of 4.08% to $396.9 million for the year ended 31 July 2018 while revenue from ordinary activities were $2,496.9 million, i.e., down 1.76% from last year. Basic and Diluted EPS was lower at 42.8 cents compared to 47.9 cents of last year. Net operating cash flow was $673.8 million compared to $722.7 million of previous year.

Technically, the scrip showed the start of the bullish trend from the month of August with slight retracements in the month of September and October. During the current month the scrip is making higher high along with major indicator like Relative strength index (RSI) and Moving Average Convergence indicator in positive territory. This indicates a bullish move that is expected to continue in the near term.

Fundamentally, the market cap of TPG was recorded at $7bn, with P/E of 17.6x, and beta below 1x as on November 8, 2018. At current juncture the scrip is trading at the price levels of $7.41. Enhanced product portfolio, huge subscriber base, mobile spectrum and effective reduction in cost along with  scrip trading at  higher highs as per technical charts, exhibits a “Hold” scenario at the current price levels of $7.41 given the industry competition and merger deal in view.
 

Domino's Pizza Enterprises Limited 

Domino's Pizza Enterprises Limited (ASX:DMP) had its AGM on November 7, 2018 wherein Management remained confident on its future sales growth. DMP under its long-term strategy will have focus on digital innovation, product innovation, and operational excellence. DMP now expects to increase efficiencies and attract new customers across all markets. Management also expects 134 Hallo Pizza stores, to be converted to Domino’s stores by the end of FY19; and DMP expects a record number of organic store openings by FY19.

Improved margins with high leverage: DMP posted EBITDA margin of 20.7% in FY18 as compared to 19.8% in FY17, Operating margin was 14.3% in FY18 as compared to 12.8% in FY17. Network sales recorded 11.7% rise up to $2,588.9m in FY18 and revenue was up by 7.5% to $1,154.0m in FY18. DMP posted debt to equity ratio of 1.79 in FY18 as compared to 0.79 in FY17. This raises some concerns on financial standing.
 
Technically, the scrip after touching the higher levels of $56.82 on October 21, is continuing with the downtrend. The formation of “Bearish Engulfing” on the price charts is well indicated. Major Indicators like RSI (Relative Strength Index) and MACD (Moving average convergence and divergence indicator) looked to be consolidating a bit.
 
Fundamentally, the market cap of DMP was recorded at $4.76bn, with Beta over 1x andhigh P/E of 39.94x as on November 8. At current juncture the scrip is trading at the price levels of $49.72. DMP with high debt to equity ratio along with valuations at higher levels and trading with negative divergence as per technical charts, exhibits a slightly negative view. We maintain an “Expensive” recommendation on the scrip at the current price levels of $49.72, down 10.7% on November 8, 2018.
 

Qantas Airways Limited

Qantas Airways Limited (ASX: QAN) has announced lounges upgrades for Sydney, Brisbane, Tokyo, Auckland, Hobart and Tamworth. On October 25, QAN has revealed plans for a new First lounge and expanded Business lounge in Singapore. Company will soon open a new domestic lounge in Melbourne.
 
Strong Performance:QAN Group’s LTM Revenue posted more than 6% rise up to 17.06 bn. The value of the forward booking was up by 8%. This will help QAN to substantially recover higher fuel costs in FY19 which for the Group as a whole is approximately to be around $860 million higher than last year. The financial figures show that Group revenue was up by more than 6 per cent to reach a record level for the start of the financial year. Looking ahead, the value of the forward bookings is also up by 8 per cent.
 
Strong Market Position with focus on new developments: QAN holds strong position with corporate and premium leisure travellers. QAN remains focussed towards investments for better customer experience like inflight Wi-Fi and better lounges. QAN has started direct Perth-London service, which has load factors over 90 per cent and the highest customer satisfaction rating on the entire network. QAN has taken delivery of six Dreamliners, with two more to arrive next month and another six on order. Management will keep the focus in maintaining a disciplined cost approach along with the strong revenue. This will provide the ability to keep investing in new avenues and provide better customer experience which in turn will deliver margin growth to the Group.
 
Technically, the scrip has taken halt with the downtrend it showed from the month of August till the month of October. The price charts have formed the candles showing rejection to downside and taking support of middle band of Bollinger. Major Indicators show some upside move in the near term.
 
Fundamentally, the market cap of QAN was recorded at $9.38bn, with beta below 1x and low P/E of 10.13x as on November 8. At current juncture the scrip is trading at the price levels of $5.71. Strong financial performance with focus on new improvements exhibits a “Buy” at the current price levels of $5.71.
 

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