TPG Telecom Limited (ASX:TPM)

TPM Details

Prospects for future Growth:Australian telecommunications and IT company, TPG Telecom, has recently come up with a profit upgrade and its financial results for the half year ending 31 January 2018 included reported EBITDA of $260.2 million for the Consumer Segment as compared to $267.8 million in 1HFY17. The Corporate Segment achieved EBITDA of $158.9 million for 1HFY18 as compared to $157.2 million for 1HFY17. The Group delivered another strong cash flow result in 1HFY18 and generated $417.2 million from its operations (pre-tax). At the end of 1HFY18, the Group had a bank debt (net of cash) of $1,394.3 million, which represented a leverage ratio of ~1.7x EBITDA and had undrawn headroom of over $900 million in its debt facilities to fund its remaining mobile network investment.
 

EBITDA Performance (Source: Company Reports)
 
The mobile network builds in Australia and Singapore continued to progress well and the projected capital expenditure on both the projects remained in line with the original forecasts. The Board declared an interim FY18 dividend which was in line with the final FY17 dividend of 2.0 cents per share (fully franked) and will be paid on 22 May 2018.  In light of the first half performance, the directors upgraded the guidance for the underlying EBITDA for the Group for the full year FY18 and now expect it to be within a range of $825-830 million. The share price was down in the past three months (by 16.9%) but was up 0.94% on April 18, 2018. We believe that investors can “Buy” the stock at the current market price of $ 5.39, given the long-term potential.
 

TPM Daily Chart (Source: Thomson Reuters)
 

Telstra Corporation Limited (ASX: TLS)

TLS Details

Expansion of distribution channel:  Buddy Platform Limited, the Internet of Things data management, processing and control platform advised that Buddy and Telstra Corporation Limited have ceased negotiations for Telstra to become the primary Buddy Ohm reseller in Australia. Whilst the Company considered negotiations were close to being finalised for some time, no agreement has subsequently been reached between the parties. Dicker Data will continue to act as a distributor of Buddy Ohm in Australia and Buddy intends to switch its sales focus and efforts in Australia to Dicker Data so that it becomes the primary distribution channel for Buddy Ohm in Australia. Dicker Data will maintain the ability to supply Buddy Ohm into their existing Telstra channels in the future if needed. Meanwhile, News Corp and Telstra completed the transaction to combine Foxtel and FOX SPORTS Australia and the commercial arrangements remained unchanged which were announced on 6 March 2018.
 

FY 18 Guidance (Source: Company Reports)
 
The stock price was down by 11.61 per cent in the past three months at the back of telco sector headwinds and concerns on rising consumer complaints which are being linked to penalty to be imposed on the telco players. However, the stock movement is giving a decent opportunity given the efforts TLS is making on transitioning to 5G, focusing on cost reduction and gaining momentum in digitisation plan. We give a “Buy” on the stock at the current market price of $ 3.120.
 

TLS Daily Chart (Source: Thomson Reuters)
 

Vocus Group Limited (ASX: VOC)

VOC Details

Focusing on New Zealand Business for sale: It seems that Vocus is yet to receive any bids with regards to the possible sale of its New Zealand assets, while the group confirmed to the market about its intention on proposed sale of its New Zealand assets as indicated on 23 October 2017. While it was not the Vocus policy to comment on any market speculation in this regard, but it confirmed in its interim results that the sale planning was progressing as per the planned timeline and is expected to complete by June 18 (subject to regulatory approvals, if required). The Group is in discussion with several parties but has not made any comment on the value of the assets. The New Zealand business is a strong business and an attractive asset and will be only sold if it achieves an appropriate return to its shareholders. The Group is well progressed on the facility refinance plans and expects to complete its refinance by the end of the current financial year. It will be crucial to see whether the group goes for any equity raising failing the above proposed plan. Meanwhile, Deutsche Bank AG and its related bodies corporate became the substantial holder of the Group since 29 March 2018 by holding 34,326,710 securities and 5.52 per cent of the voting power.
 

Revenue Performance (Source: Company Reports)
 
Earnings guidance for the full year has been revised and the group expects that underlying EBITDA will be in the range of $365-380 million (previously $370 - $390 million) on revenue in the range of $1.9-2 billion (unchanged) given the challenging Australian Consumer division. The share price movement has shown a downward trend in last one year and we recommend to “Hold” the stock at the current market price of $ 2.290; and wait for some catalyst for any improvement in the stock price trend.
 

VOC Daily Chart (Source: Thomson Reuters)

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