TPG, impressive results but share price plunges!

TPG, impressive results but share price plunges!

Although released later than most other companies, TPG’s full year results released this morning are impressive by any standards, notwithstanding the fact that much of the gain came from the acquisition of iiNet. Statutory revenue growth, EBITDA growth and NPAT were up 88%, 75% and 69% on the prior year. These numbers are a continuation of the trend for TPM, with every one of these metrics increasing year over year since at least 2009. Despite the strong numbers, TPM’s earnings multiple of 26 times as of Monday afternoon leave it vulnerable to disappointment.  

Source: TPG FY16 Results Presentation

The primary contributor to the large earnings increases is the acquisition of iiNet that occurred in September last year. This transaction more than doubled TPM’s broadband subscribers from 853,000 to 1.84m and firmly cements TPM as one of the major broadband providers in Australia.

Traditionally Telstra has had a stranglehold on the ADSL market and still remains the largest telecommunications provider in Australia by a comfortable margin. The introduction of the NBN, however, has opened the playing field and allowed smaller operators to grab market share as the new NBN network is rolled out. TPM’s NBN customer numbers have increased from zero in January 2014 to 119,000 in July this year (this excludes the customers obtained from the iiNet acquisition). While NBN customers still only make up a relatively small percentage of total broadband customers, the numbers are growing much faster for NBN than for the other broadband types. TPM also has a mobile offering however the number of mobile subscribers has actually been dropping gradually since 2014, excluding the mobile customers obtained from iiNet. This gradual decline in mobile customers may be a reflection of TPM focussing on marketing its NBN offerings. The rise of online streaming services such as Netflix, Presto etc. mean that the average household is likely to find benefit in the increased speeds of the NBN. TPM is currently marketing its NBN offering fairly aggressively which should translate to continued subscriber growth in this area.  

The dividend payout for FY16 will be $0.145, after the payment of a $0.075 dividend on 22 November (record date 18 November). At the current share price of $9.8, that puts the 12-month trailing dividend yield at just 1.5%. This is a fairly low number however it is consistent with TPM’s strategy of retaining earnings for growth. Guidance for FY17 is for a further 5.8-7.0% increase in underlying EBITDA although capital expenditure is expected to rise significantly.

The market was clearly disappointed with the results as the share price dropped 17% on the open today. Although it is difficult to pinpoint why the market was disappointed, TPM is trading on a fairly high earnings multiple that leaves it susceptible to earnings disappointments. It is possible that the market is unimpressed by the FY17 forecast earnings growth as this would represent one of the lowest EBITDA growth rates in the last several years.

This article was written by William O'Loughlin - Local Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.        

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