Recent Changing Landscape In Telecom Sector – TPM, VOC

The recent landscape of the Australian telecom sector is rapidly changing. With the 5G network implementation around the corner, the companies are optimistically looking ahead; however, they are facing swift industrial transformation along with several challenging situations to cope up with. Let us look at the two sector giants, TPM and VOC.

TPG Telecom Limited (ASX: TPM)

TPG Telecom Limited (ASX: TPM) is engaged in offering internet, mobile and fixed line services to its customers, including residential users, small and medium enterprises, government, large corporate enterprises and wholesale clients.

The Australian Competition and Consumer Commission (ACCC) has expressed its disagreement for the proposed merger between TPG Telecom and Vodafone. Additionally, TPG has been referred to as a potential competitor in the mobile industry and prices would fall if TPG enters the market as a new mobile operator.

As per TPG’s update on 24th May 2019, it has filed a statement of claim with the Federal Court to seek approval for the proposed merger. TPG Telecom has lodged the proceedings stating that the proposed merger will not result in a substantially lower competition.

Consolidate Interim Income Statement 1HFY19 (Source: Company Reports)  

Looking at the financials, TPM’s revenue decreased by 1.5% over the prior corresponding period to $1,235.8 million in 1H FY19 as compared to $1,254.6 million in 1H FY18. The company reported gross profile decrease on the back of a loss of home phone voice revenue led by NBN rollout.

The stock was trading at $6.290, with a market capitalisation of circa $5.85 billion as on 31st May 2019. It has yielded a YTD return of 0.16% and exhibited negative returns of 12.38%, 7.76% and 6.53% over the past six months, three months and one-month period, respectively. Its 52-week high price stands at $9.650, and the 52-week low price stands at $5.030, with an average trading volume of ~1.43 million. The stock is trading at a PE multiple of 23.860x.

 

Vocus Group Limited (ASX: VOC)

Vocus Group Limited (ASX: VOC) is a provider of communication services, specializing in fibre network services.

In a recent update, VOC confirmed that EQT Infrastructure, through a confidential, non-binding agreement, indicatively proposed Vocus to acquire all its shares at a price of $5.25 per share through cash consideration, to be implemented by way of a scheme of arrangement subject to diligence by EQT.

Non-exclusive due diligence access to EQT has already been granted by Vocus Board so that EQT can put a formal binding proposal to Vocus, which may take several weeks. The company advised VOC shareholders not to respond on the indicative proposal at this point of time. Allens has been appointed as Legal Adviser by Vocus and UBS has been appointed as the Financial Adviser.

FY19 EBITDA Guidance (Source: Company Reports)

Turning to the financial performance for the period, VOC’s revenues increased marginally on the previous corresponding period (pcp) to $974.2 million in 1H FY19 from $967.3 million in 1H FY18, supported by growth in Vocus Networks but offset by declining revenues in Vocus Retail segment. Underlying EBITDA is expected to be in the range of $350 million to $370 million in FY19. The capital expenditure is expected to be between $160 million to $170 million in FY19. VOC is reinvesting in the business in FY19 to support revenue and earnings growth in FY20 and beyond.

The stock was trading at $4.590, with a market capitalisation of circa $2.87 billion as on 31st May 2019. It has yielded a YTD return of 50.16% and exhibited returns of 37.61%, 25.96% and 17.90% over the past six months, three months and one-month period, respectively. Its 52-week high price stands at $4.90, and the 52-week low price stands at $2.210, with an average trading volume of ~2.38 million. The stock is trading at a PE multiple of 71.36x.


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