3 Telecom Sector Stocks – TLS, VOC, TPM

 Stocks’ Details
 

Telstra Corporation Ltd

Secured 30-80 MHz nationwide in 5G spectrum auction: Telstra Corporation Ltd (ASX: TLS) is a leading telecom and tech company headquartered in Melbourne, Australia. It provides a full range of services and compete in the telecom market in Australia and provide end-to-end solutions like managed network services, global connectivity, cloud, voice, etc.

On 18 December 2018, the company has agreed on the terms to become one of the anchor customers of SX NEXT and a shareholder in the company Southern Cross. However, this is subject to completion of the documentation and getting approvals from the regulators. If approved, TLS will become the shareholder of 25% in Southern Cross, which will result in the dilution of Spark New Zealand’s shareholding to approximately 37.5%.

On the other hand, TLS has secured 30-80 MHz nationwide in the 3.6 GHz spectrum auction held by The Australian Communications and Media Authority, by investing $386M for the rollout of the 5G spectrum. As per the management, the company is planning to expand the 5G coverage in the coming months.


FY18 Financial Highlights (Source: Company Reports)

Over the past five years, the margins of the company have declined because of the rising competition. During FY18, the company reported an EBITDA and Operating margins of 28.7% and 11.3% respectively which were below the industry median of 30.9% and 15.5% respectively. However, it reported a higher net margin of 13.6% as well as higher ROE of 24.1% as compared to the industry median of 10.3% and 13.8% respectively. Although the asset turnover ratio was reported at 0.61x which was above the industry median of 0.50x, still it is unable to fully utilize its assets to generate the revenue. The company has ~11.89 billion shares outstanding with the market cap of $33.9 billion (as on January 02, 2019) and a beta of 0.62x (5-Year monthly basis).

Meanwhile, the stock price has fallen 10.38% in the past three months and is trading at a low P/E level of 9.50x as compared to the industry P/E of 22.28x. Today, the stock is down by 2.807% as compared to the previous close, currently trading at the price of level $2.77, close to its support level of $2.71. The stock is positioned near to the lower band of the Bollinger band and is in the favorable position of the Relative Strength Index (RSI). We, therefore, maintain our “Buy” recommendation on the stock at the current market price of $2.77.
 

Vocus Group Ltd

 
Agreement with Optus Wholesale VOC to access future 5G mobile services: Vocus Group Ltd (ASX: VOC) is an Australian based telecom company operating in Australia and New Zealand. It owns an extensive national infrastructure network of metro and backhaul fiber spread across the continent.

On 24 December 2018, VOC has signed an agreement with Optus Wholesale by renegotiating and extending for further five year its current Mobile Virtual Network Operator (“MVNO”) agreement. The agreement will help VOC to grow its mobile customer base along with access to the 5G network and future technologies. Further, it will support the company’s strategy of increasing its market share in Enterprise and Small to Medium Business segments. VOC is expected to pay Optus more than $200 million over the duration of this five-year agreement.


FY18 Performance Highlights (Source: Company Reports)

Over the past five years, the margins of the company have declined because of the rising competition. During FY18, the company reported an EBITDA and Operating margins of 19.3% and 7.2% respectively which were below the industry median of 30.9% and 15.5% respectively. Further, it reported a lower net margin of 3.2% as well as lower ROE of 2.6% as compared to the industry median of 10.3% and 13.8% respectively. The asset turnover ratio reported at 0.45x was also below the industry median of 0.50x, showing that the company is unable to fully utilize its assets to generate the revenue. The company has ~620.13 million shares outstanding with the market cap of $1.91 billion (as at January 02, 2018) and a beta of 0.70x.

Over the past six months, VOC’s stock price has soared by 39.13% and is trading at a high P/E of 32.62x as compared to the telecommunication industry P/E of 6.3x. Today, the stock is down by 4.062% as compared to the previous close, currently trading at the price of level $3.070 and has its support level at $2.95. The stock is positioned near to the lower band of the Bollinger band and is in the favorable position of the Relative Strength Index (RSI). We, therefore, maintain our “Hold” recommendation on the stock at the current market price of $3.070, considering aforesaid facts and current trading scenario.
 

TPG Telecom Ltd

ACCC’s final decision on merger with Vodafone is scheduled for 28 March 2019: TPG Telecom Ltd (ASX: TPM) is an Australian based telecom company operating under TPG, iiNet, and Internode brands. It owns and operates 1.9 million fixed broadband subscribers and approx. 421,000 mobile subscribers.

On 13 December 2018, the Australian Competition and Consumer Commission (ACCC) issued a Statement of Issues (SOI) with regard to the proposed merger of TPG and Vodafone Hutchison Australia Pty Limited (VHA) through a Scheme of Arrangement (Scheme). Although ACCC has not finalized the decision yet, it is expected to finalize the decision on 28 March 2019. TPM expects to complete the precedent requirements and regulatory approvals for the completion of the merger in the 1H 2019.


Growth over past 10 years (Source: Company Reports)

Over the past five years, the margins of the company have been consistent showing a positive sign as compared to the industry. During FY18, the company reported an EBITDA and Operating margins of 33.7% and 24% respectively which were above the industry median of 30.9% and 15.5% respectively. Further, it reported a higher net margin of 16% as well as lower ROE of 15.3% as compared to the industry median of 10.3% and 13.8% respectively. The asset turnover ratio reported at 0.54x was slightly above the industry median of 0.50x, still showing that the company is unable to fully utilize its assets to generate the revenue. The company has~ 927.81 million shares outstanding with the market cap of $5.98 billion (as at January 02, 2018) and a beta of 0.70x.

Over the past six months, TPM’s stock price has soared by 27.02% and is trading at a reasonable P/E level of 15.05x as compared to the industry P/E of 6.3x. Today, the stock is down by 2.33% as compared to the previous close, currently trading at the price of level $6.290 which is close to its new support level at $6.2. The stock is positioned near to the Simple Moving Average (SMA) level of the Bollinger band and is in the favorable position of the Relative Strength Index (RSI). We, therefore, reiterate our “Hold” rating on the stock at the current market price of $6.290.
 

Stock Price Comparative Chart (Source: Thomson Reuters)
 

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