Stocks’ Details

TPG Telecom Limited

Increase in Underlying Profit: TPG Telecom Limited (ASX: TPM) is engaged in offering internet, mobile and fixed line services to its customers including residential user, small and medium enterprises, government, large corporate enterprises and wholesale clients.

The company will distribute a dividend of AUD 0.020 per share with a payment date of May 21, 2019. The ex-date and record date were April 15, 2019 and April 16, 2019 respectively.

TPG’s mobile network in Singapore has achieved a nationwide outdoor coverage performance result of over 99%, easily exceeding the 95% milestone it was required to meet by the end of 2018.


Summary Results 1H FY19 (Source: Company Reports)

The revenue decreased by 1.5% over the prior corresponding period with $1235.8 million in 1H FY19 as compared to $1,254.6 million in 1H FY18, on the back of loss of home phone voice revenue, due to the NBN rollout. The underlying EBITDA increased from $413.0 million in 1H FY18 to $424.4 million in 1H FY19, an increase of 2.8% over the prior corresponding period, primarily on the back of other EBITDA growth achieved relative to 1H FY18, driven by growth in the Corporate Division (including an uplift in contribution from the VHA fibre contract) and the continued realisation of operating expense efficiencies across the Group. 

EBITDA & Capex Guidance: The Directors reaffirmed the guidance provided in September 2018 for ‘Business as Usual’ EBITDA for the group for the full year FY19 to be in the range of $800-820 million and capex to be in the range of $180-220 million.

Stock Recommendation: At the current market price of $6.750, the stock is trading at price to earnings multiple of 25.530x with market capitalisation of ~$6.25 billion. There has been a significant decrease in employment and overhead costs reflecting the results of ongoing operating cost optimisation work. Moreover, with the company’s mobile network achieving an extraordinary nationwide outdoor coverage performance result in Singapore, along with growth in underlying financial key performances against the prior corresponding period, we believe the company to perform decently going forward. Hence, we give a “Hold” recommendation on the stock at the current market price of $6.750 (up 0.148% on 1 May 2019).

Telstra Corporation Limited 

Significant YTD Returns: Australian telecom giant, Telstra Corporation Limited (ASX: TLS)in the recent pasthas announced that the former Group Executive of the Consumer and Small Business Mr. Vicki Brady will be entitled to a new role of Chief Financial Officer and Head of Strategy. It will be applicable from 1 July as mentioned by CEO Andy Penn. Further, ‘Consumer and Small Business’ function will be permanently led by Acting Group Executive Michael Ackland.


Results Half-Year ended 31-December 2018 (Source: Company Reports)

The EBITDA of the company stood at $4.3 billion in 1HFY19, down by 16.4 per cent, and NPAT stood at $1.2 billion, down 27.4 per cent driven primarily by NBN impacts.The company was able to reduce costs significantly and is on track to meet FY19 targets as part of the goal of achieving $2.5 billion net productivity improvement by 2022. The company’s performance remains decent excluding the impact of the NBN.

EBITDA guidance: In FY19, the company expects a total income of $26.2 billion - $28.1 billion and EBITDA (excluding restructuring costs) of $8.7 billion to $9.4 billion. The company expects the capital expenditure to be within a range of $3.9 billion and $4.4 billion while itexpects the free cash-flow to be within $3.1 billion and $3.6 billion.

Driven by continued growth in the customer numbers along with significant progress on the 5G spectrum front and the progress in executing T22 strategy, the outlook of the company remains decent.

Moreover, the stock generated a YTD return of 23.19% and its 6-months return stood at 9.37%. Hence, considering the decent business outlook amidst certain challenges, we maintain our “Hold” recommendation on the stock at the current market price of $3.400 per share (up 0.592% on 01 May 2019).
 

Vocus Group Limited

Acknowledged a class action proceeding: Vocus Group Limited (ASX: VOC) acknowledged a class action proceeding filed in the Federal Court of Australia has been served against the company, filed by Slater & Gordon, on behalf of persons who acquired an interest in shares of the company from 29 November 2016 to the close of trade on 2 May 2017. VOC intends to defend this proceeding.
        
The company is alleged of breaching the Corporations Act 2001 related to the misleading or deceptive conduct and continuous disclosure obligations in respect of Vocus’ FY17 earnings guidance. The litigation funding in relation to the proceeding are provided by Investor Claim Partner Pty Ltd, ICP Capital Pty Ltd and Woodsford Litigation Funding Limited.


Revenue & EBITDA 1H FY19 (Source: Company Reports)

The revenue of the company increased marginally on the previous corresponding period (pcp) to $974.2 million in 1HFY19 from $967.3 million in 1HFY18, supported by growth in Vocus Networks but offset by declining revenues in Vocus Retail segment. Underlying earnings before interest, tax, depreciation and amortisation (excluding share-based payments) decreased 7% on the pcp to $176.4 million.

The cash conversion has improved to 93%, from a comparable base of 87%.The key factors influencing the improvement includes upfront cash of $26.5 million received relating to a long-term contract for ASC services, deferred revenue bought to account amounting to $8.5 million, primarily relating to revenues recognised under the North West Cable System project and the run off of contracts acquired through the Amcom and Nextgen acquisitions.
Optus MVNO deal signed in December 2018 will enable VOC to participate in the wireless broadband and mobile market along with the up-coming 5G environment. The company is well equipped to take the advantage in the wireless market across all its brands.

Expectations Going Forward: Underlying EBITDA is expected to be in the range of $350 million $370 million. The company expects the capex to be $160 million to $170 million. The company is investing in FY19 to drive revenue and earnings growth in FY20 and beyond. The company expects the second half of FY19 to be stronger than the first half, with further cost savings across the business and from the benefit of the Optus MVNO (path to 5G and economics constructed for scale growth) deal.

On the back of several strong business drivers including, Australia Singapore Cable launching, accelerating new sales momentum in Vocus Networks-Services and the Optus MVNO deal signed in December by the company, Vocus is placed to perform well going forward. Looking at the historical price movement, it has generated a YTD return of 27.36% along with 8.01% gain in the last 1-month. The stock is currently trading near to its 52-week high of $3.990. Considering the above-mentioned factor, we believe the stock will continue its momentum, hence, we recommend a “Hold” rating on stock at current market price of $3.890 (down 0.512% on 01 May 2019).

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