3 Telecom Stocks - VOC, TLS, TPM

  • Apr 14, 2019 AEST
  • Team Kalkine
3 Telecom Stocks - VOC, TLS, TPM

5G, the next big evolution in mobile technology is a hot topic in Australia. Companies to be benefitted by 5G rollout have seen good responses on ASX. Companies are in the process of developing their business model in the suitable for “Next Generation Mobile” to be roll out. Let’s consider few stocks from this perspective.

Vocus Group Limited (ASX: VOC)

Vocus Group Limited (ASX: VOC) is a telecom service provider, catering the services in Australia and New Zealand markets. VOC is vertically integrated and owns the infrastructure network of metro and backhaul fibre. VOC operates in five segments- (a) Vocus Networks – Services (b) Consumer Australia (C) Business (d) New Zealand (e) Infrastructure, Operations and Group.

VOC in response to the media speculation regarding potential equity raising cleared that the management is comfortable with the current debt situation and not planning to raise additional capital as of now.

H1 FY2019 Financial Performance- Statutory revenue stood at $974.2 million with minor growth of 0.7%. Statutory EBITDA at $168.6 million, recorded a de-growth of 10.4%. Segment-wise, business and consumer Australia underperformed and impacted the numbers adversely.

What To Expect: Management intends to maximize profits within Enterprise, Government and Wholesale markets in Australia and New Zealand with these fibre and network assets, hence increasing the market share. For FY19, VOC will focus on operating and capital expenditures. Going forward, management expects CapEx (excluding ASC project) to be in the range of $160 million to $170 million and underlying EBITDA of between $350 million to $370 million.

At CMP of $3.630 as on 12 April 2019, the stock is trading at P/E multiple of 55.88x with a market capitalisation of $2.25 billion. Analysing the stock performance, the stock has moved up significantly at 54.27% on an annual basis.

Telstra Corporation (ASX: TLS)

Telstra Corporation (ASX: TLS) basically operates in – (1) Mobile Telecommunication Services (2) Basic Access Services to many homes and businesses in Australia (3) Enhanced Fixed Services (4) Broadband Access and Content (5) Media Services (6) Online Services, etc.

TLS in the month of March 2019, issued a bond worth EUR 600 million under its Debt Issuance Program with a coupon of 1.375% and maturity on 26 March 2029.

H1 FY19 group revenue for TLS was $12,586 million with de-growth of 1.7% and profit was $1,228 million with de-growth of 27.4%, mainly impacted by a further rollout of the nbn™ network and intense competition, though management considers the performance in-line with guidance. Telco products and services have seen the growth and telco infrastructure is likely to support this growth further over the next decade. With the commencement of 5G, ARPU is expected to see a positive impact across the industry.

Capital commitments for H1 FY19 increased by $315 million as TLS is committed to invest $386 million to support its national 5G rollout.

At CMP of $3.330 at market close on 12 April 2019, the stock is trading at P/E multiple of 12.680x with an annual dividend yield of 3.78%. Analysing the share price movement, the stock has given a return of 8.99%, 7.45% and 14.04% for one year, six months and three months, respectively.

TPG Telecom Limited (ASX: TPM)

TPG Telecom Limited (ASX: TPM) is an Australian telecom company providing a wide range of communication services, which includes ADSL2+, NBN, Fibre Optic and Ethernet broadband access, telephony services, IPTV, etc.

TPG communicated on 29 January 2019, that it has withdrawn the plan to rollout its mobile network in Australia. The decision was taken because of Govt’s announcement in August 2018, banning Huawei equipment in 5G networks.

ACCC in December 2018, stated its concerns regarding the proposed merger between TPG and Vodafone Hutchison Australia with a view of a substantial lessening of competition in the market.

Net revenue for H1 FY19 was $1235.8 million, a de-growth of 1.5% as compared to $1254.6 million in H1 FY18. EBITDA at $ 420 million for the same period was a bit higher than $413 million in H1 FY18. Net debt for H1 FY19 stood at $1,567.6 million, representing a leverage ratio of ~1.85x underlying annualised EBITDA. The company has announced an interim FY19 dividend of 2.0 cents per share (fully franked) payable on 21 May 2019.

Management expects BAU EBITDA for FY19 to be in the range of $800 million to $820 million with BAU CapEx at $180 million to $220 million.

At the current market price of $7.050 at market close on 12 April 2019, the stock is trading at a PE multiple of 26.480x. Market capitalisation for TPM is $6.49 billion, with an annual dividend yield of 0.57%. The stock price has moved up 28.97% on one-year basis, whereas on a six-month basis, share price dipped to 8.98%.


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