TPG Telecom Limited

5G Services can be a growth catalyst: TPG Telecom Limited (ASX: TPM) is an Australia-based telecommunication company with the market capitalization of circa 5.3 Bn as on July 23, 2018. Currently, the entire telecom industry has been under pressure due to the changes in the National Broadband Network (NBN) services and intense competition. To protect the market share within the Industry, the group launched several exciting offers such as attractive mobile plans where users will enjoy first 6-months free services, after that, they will be charged at $9.99 per month. This strategy was brought to support to enhance TPM’s subscriber base in the upcoming period, thus resulting in topline growth of the company. Though earnings gap owing to nbn is what investors are worried about along with the rise in competition from the players like Telstra (TLS) and Vocus (VOC), the group expects to touch the upper limit of its underlying EBITDA guidance which is in the range of $825-$830 Mn for the full financial year.  During the first half, the group faced rising costs from the migration of DSL customers to lower margin NBN services, and loss of gross profit from home phone services as customers migrate to NBN bundled services while there is an increase in electricity prices. As of now, the group is working on cost reduction initiatives and this along with the step change of technology to 5G may help the group to generate overall growth in years to come.


1HFY18 Group Segmental Analysis (Source: Company Reports)

Meanwhile, the share price climbed up 11.52 per cent in the past three months (as at July 20, 2018) and trading much above the 52-week low level ($ 4.855). Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 5.650, considering cost-cutting initiatives and target to extend into 5G services which could be the growth catalyst for the company in the long run. The group is ready to invest heavily into creating better mobile networks.

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