Telstra Corporation
Ongoing leadership: Telstra Corporation Ltd (ASX: TLS) reported a slight income increase of 1.2% yoy to $26.6 billion on a reported basis for the fiscal year of 2015. But the group’s EBITDA and net profit after tax fell by 3.5% yoy to 5.8% yoy to $10.7 billion and $4.3 billion. On the other hand, the group delivered solid mobile and fixed data growth, driven by better mobile postpaid handheld ARPU, cloud hosted solutions as well as contributions from the strategic acquisitions made by Telstra SNP Monitoring (formerly SNP Security) and AFN Solutions. The group’s mobile customers rose by 4.1% yoy to 16.7 million in FY15 while mobile service revenues rose by 7.2% yoy, the highest growth in the last three years. At the same time, Telstra continues to face pressure from the consolidation of the smaller players, which would impact its growth prospects in the coming months. The Company also reported for an interest in investing in the Philippines but the impact is yet to be seen.
.png)
Product performance (Source: Company Reports)
The stock already corrected over 8.6% in the last three months. Even then we believe that the stock would continue to be under pressure in the coming months, given its limited growth opportunities. Accordingly, we place an “expensive” recommendation on TLS at the current price of $5.7.
TLS Daily Chart (Source: Thomson Reuters)
TPG Telecom
TPG partnership with Vodafone Australia: TPG Telecom Ltd (ASX: TPM) entered into a deal with Vodafone Australia worth of over $1 billion to shift the mobile customers of the group into TPG telecom. TPG would be delivering dark fiber and network services to 3,000 Vodafone sites which is estimated to generate a revenue of $900 million as compared to the capital expenditure of over $300 million to $400 million that would be incurred in the coming years for this project. Meanwhile, TPG Telecom also delivered outstanding performance during the fiscal year ended 2015, improving by 31% year on year (yoy) to $1,270.6 million driven by AAPT acquisition and organic growth. Accordingly, the EBITDA rose by 33% yoy to $484.5 million during the period, while earnings per share improved by 31% yoy to 28.2 cents. TPM also improved its dividends per share by 26.3% yoy to 6.0 cents per share. As a result, the shares of TPG Telecom delivered a solid year to date returns of 59.7% and rallied over 15.7% in just last four weeks alone. The group recently acquired iiNet, making TPM the second major firm in Australia.
.png)
EBITDA performance highlights (Source: Company Reports)
However, we note that the recent rally in the stock has placed TPG at expensive levels which is trading at a higher P/E of 38.5x. Moreover, TPG also delivers a relative lower dividend yield of 1.1%. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $10.67.
TPM Daily Chart (Source: Thomson Reuters)
Vocus Communications Limited
Deal highlights: Vocus Communications Limited (ASX: VOC) and M2 Group Ltd (ASX: MTU) recently executed Merger Implementation Agreement wherein both would merge as a full-service vertically integrated Trans-tasman Telecommunications Company. This deal would leverage the NBN in Australia and UFB in New Zealand. The merger would lead to an estimated combined revenue of over $1.8 billion and EBITDA of over $370 million in fiscal year of 2016, before synergies. The estimated combined market capitalization would be more than $3 billion. Moreover, the cost synergies are expected to be over $40 million per annum, and would be totally realized by the end of FY18. Exemplary revenue synergies would entail Vocus’ fibre enabling M2’s DSLAM network in ANZ and mobilization of M2’s distribution to further penetrate into Vocus’ on-net buildings. Balance sheet would also be solid having a leverage of over 1.8x net debt to FY16E EBITDA. Under the agreement, M2 shareholders will receive 1.625 vocus shares for each M2 share. M2 shareholders are expected to own 56% and Vocus shareholders will own about 44% of the combined group.
Combined synergies leading to a better product portfolio and revenue diversification (Source: Company Reports)
Performance: Vocus delivered solid performance during the fiscal year of 2015, wherein revenues surged to $315 million (on pro forma) or $150 million as compared to $92 million in FY14.
Better ASX market position (Source: Company Reports)
On the other hand, Vocus year to date returns fell by 7% and the stock is also trading at an expensive P/E of 32.11x. Vocus has only 0.5% dividend yield. We view the stock to be overvalued and accordingly give an “Expensive” recommendation at the current price of $6.15.
VOC Daily Chart (Source: Thomson Reuters)
M2 Group Limited
Recent Updates: M2 Group Ltd. (ASX: MTU) has taken a lot of attention with NAB becoming substantial holder on 28 September 2015 and execution of merger agreement with Vocus Communications Limited. The merger with Vocus has been seen as a strong way to hit the strength of the rival Telstra with regards to telephone and internet services. The company has recently purchased New Zealand’s CallPlus Group and 2Talk. The updates from the Australian Bureau of Statistics (ABS) about the surge in the data downloaded (via fixed land broadband) in the three months to end of June 2015 as compared to December 2014 quarter seems to help telecommunication companies such as MTU to benefit on the back of upgrading plans and even going for higher usage plan.
Performance: M2 revenues surged to $1.12 billion in FY15 against $1.02 billion in FY14 reflecting a 9% rise. Earnings before interest, tax, depreciation and amortization (EBITDA) surged by 6% to $170.5 million and net profit after tax rose by 10% to $73.7 million. The company declared 17 cent as fully franked dividend which took the full year dividend to 32 cent reflecting a 23% rise. The stock delivered an outstanding performance of 17.2% during this year to date and we believe this performance to continue forward, boosted by the Vocus merger agreement. M2 also has an annual dividend yield of 3.5%. Based on the foregoing, we give a “BUY” recommendation on M2 Group at the current price of $9.33.
.bmp)
MTU Daily Chart (Source: Thomson Reuters)
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2015 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.