Australian telecommunication company, TPG Telecom Limited (ASX: TPM) made an announcement today (29 January 2019) stating that it has decided to cease the rollout of its mobile network in Australia. As per the company’s announcement, this decision is primarily driven by the factors which are outside the company’s control. Following the announcement, the share price of the company increased by 3.017% on 29 January 2019.
Since April 2017, the company was designing and implementing a mobile network in Australia, and it had already selected Huawei principal equipment vendor for the network. However, in August 2018, the Government made an announcement stating that it would prohibit the use of Huawei equipment in 5G networks and after that announcement, TPG has now reached the decision point for whether to place orders for additional Huawei equipment. The company has reached to the conclusion that it does not make commercial sense to invest shareholder funds in a network that cannot be upgraded to 5G which is why the company has taken the decision to cease the rollout of the company’s mobile network in Australia.
To date, the company has incurred network rollout capital expenditure of around $100 million. As per the announcement, currently, the Company’s Board is not in a position to announce any decision on its future strategy for the company’s current spectrum holdings.
While providing the update on Mobile Network Rollout, the company’s Executive Chairman Mr. David Teoh informed that in the past two years a huge amount of time and resource has been spent to rollout 5G Mobile network in Australia, and he also confirmed that the company is committed to the planned merger with Vodafone Hutchison Australia (VHA). It is expected that the merger with Vodafone Hutchison Australia (VHA) will bring greater strength to the combined group through increased coverage and capacity in densely populated areas. Currently, the company does not believe that this decision of ceasing the rollout of its mobile network in Australia will have any impact on its FY 2019 guidance.
In FY 2018, the company reported revenue of $2,495.2 million which was 0.2 percent higher than the previous corresponding year. The company reported an Earnings before interest, tax, depreciation and amortization (EBITDA) of $841.1 million which was 5.6 percent lower than the last year. The company earned a Profit of $398.0 million in FY 2018 which was 4.3 percent lower than the previous corresponding year. The total capital expenditure for the financial year 2018 was $956.3 million which included $597.3 million of spectrum payments and $101.0mn invested in the mobile network builds in Singapore and Australia. At the end of FY 2018, the company had net debt of $1,266.4m, which represents a leverage ratio of ~1.5x EBITDA.
In the last six months, the share price of the company increased by 25.18 percent as on 25 January 2019. TPM’s shares traded at $7.170 with a market capitalization of circa $6.46 billion as on 29 January 2019.
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