TPG Telecom Limited (TPM) Stock To Watch

TPG Telecom Limited (TPM) wholesales bandwidth and other telecommunications services.

The company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Its network infrastructure includes fixed line, fibre and wireless services connecting voice customers with call collection areas throughout Australia and data and internet customers with more than 350 exchange areas.

FY12 results

Last week TPM reported their FY12 results, which showed an EBITDA of $261.4 million, a 12% growth on the prior year. The result was slightly ahead of its upgraded EBITDA guidance of between $250 million and $260 million.

TPM posted a net profit of $91.0 million, a 16% rise on prior corresponding period. The result was hurt by a pre-flagged $23 million one-off tax expense relating to a change in taxation legislation.

Normalised NPAT (which excludes one-off expenses) jumped 46% to $114.2 million. Total revenue over the period lifted 15% to $663.1 million.


Late last month Leighton Holdings announced that it is exploring the sale of its telecom assets, in an effort to reduce balance sheet pressures.

It is believed that Nextgen Networks, which specialises in high performance, premium data services for corporate, government and carrier markets, is on the chopping block.

TPM is reportedly interested in the assets which are expected to fetch anywhere between $500 million and $800 million. We think that the business would be a perfect strategic fit for TPM and could provide some synergy benefits with its current infrastructure.

Given that Nextgen has forecasted for a CY13 EBITDA of $125 million we believe that TPG would be able to acquire the asset completely through debt, given earnings would more than cover the extra debt liabilities.

A capital raising is also a possibility, but given the likely earnings accretive nature of the purchase we can’t see a raising being completed at a steep discount.


TPM has been a consistent performer over the last few years, growing earnings in what could only be described as a weak consumer environment.

The group has forecasted EBITDA growth of over 6% for FY13, which we feel is conservative. TPM has a history of conservative estimates with only 6% EBITDA growth forecasted for FY12 and 12% achieved.

The possibility of the purchase of Nextgen is also appealing, given the likely favorable terms TPM would be able to achieve due to Leighton’s need to relieve balance sheet pressures. Overall we think TPM has the capacity for continued growth and this is likely to be reflected in its share price.