Are 5G Stocks on ASX Set To Soar In The Coming Days?

  • Oct 16, 2019 AEDT
  • Team Kalkine
Are 5G Stocks on ASX Set To Soar In The Coming Days?
Why upgrade to 5G?

Communications services are the key foundation for the digital transformation of an economy with its significant impact on the productivity, innovation and efficiency gains brought in by it. Telecom sector of the Australian economy plays a pivotal role in the overall development of the country.

The outlook for the upcoming years suggests steady growth in the mobile broadband market until 2023. Moreover, the ever-increasing competition in the telecom sector of Australia is having a braking effect on the average revenue per unit (ARPU). Additionally, the forecast in the growth of the number of subscribers is said to be low until the year 2023.

In order to provide access to fast, reliable and affordable broadband services and increase the impact of the telecommunications sector on Australia’s economy, the companies need to keep up with the technological innovations like 5G.

What is 5G and its potential?

5G or fifth generation of mobile internet connectivity is an advancement in the telecommunication technology, which allows substantially faster data download and upload speeds, broader coverage and improved stability in connections. Moreover, the technology also facilitates efficient utilisation of the radio spectrum and further enables a larger sum of devices to use the mobile internet simultaneously.

5G as a disruptive technology underpins the potential to boost the limits of fixed to wireless broadband substitution with its capability to deliver faster speeds as compared to fixed broadband services. The employment of the 5G technology in the businesses may bring in exploitative opportunities, depending on the degree of substitution.

With its exploitative nature, 5G technology shall help to uplift the digital capability of Australia by enhancing the network capability over the time to meet the increasing and varied needs of Australian homes and businesses. Looking at the bigger picture, the investment and infrastructural development of 5G shall further create convenience to the business and in the daily life of the consumers, thereby reflecting upon the economic performance of the country.

In addition to this, National Broadband Network (NBN) recently rolled out its corporate plan 2020-2023 which has significantly impacted the FY20 guidance of companies like Telstra and other companies providing telecommunications and 5G services in Australia.

NBN makes a funding forecast of $51 billion

NBN (National Broadband Network) Co has reduced its total number of premises forecast to be connected during FY20 from 2 million to 1.5 million as a part of its Corporate Plan 2020.

Few forecasts of the company’s Corporate Plan 2020–23 are:

  • The plan continues to support a peak funding forecast of $51 billion;
  • Revenue is forecast to grow from $2.8 billion in FY19 to $3.7 billion in FY20 with the re-phasing of the network activations;
  • Post FY20, this plan forecasts a reduction in capex alongside the completion of the build and an increase in annual revenue to $5.9 billion by FY23;
  • Positive cash flow is forecast to be achieved in FY23.

For funding the company’s corporate plan, the Commonwealth Government has agreed to allow the company to access up to $2 billion of private sector long-term debt. In addition to this, the company has flexibility and discretion, subject to the constraints of a public equity funding commitment of $29.5 billion and a Commonwealth Government loan facility of up to $19.5 billion, in the company’s operational, technology and network design decisions.

The market leaders in the Australian telecommunication sector are feeling the heat, which is reflected in their stock performance as well as operational performance. After the rollout of NBN Co’s plan, the telecommunication companies are looking forward to re-engineer their ongoing and future strategies.

Let us now gain an update on what is new with a few telecom stocks listed on ASX.

Telstra Corporation Limited (ASX: TLS)

TLS eyes EBITDA growth

Telstra Corporation Limited (ASX:TLS) is a leading company in the Australian telecommunications and technology sector that serves a broad range of communication services.

Telstra’s entry into the 5G network of wireless technology would define its expansion and help in gaining share in the telecommunications would be providing a speed where files with huge volumes of size can be conveniently downloaded in few seconds.

Following the release of the NBN’s Corporate Plan, TLS announced its FY20 guidance. Telstra’s updated cost reduction target is $630 million for FY20, which reduced from $660 million.

Figure 1 Revised NBN FY20 guidance of TLS (Source: Company’s Report)

However, the company firmly believes that the underlying EBITDA (excluding in-year nbn headwind) is expected to grow by up to $500 million in FY20.

By the end of the trading session, on 16th October 2019, the company's stock was at a price of $3.6, edging up 1.695%, with a daily volume of ~ 10,543,006 and a market capitalisation of approximately $42.1 billion. Over a period of six months, TLS stock has provided the return of 6.85 percent.

5G Networks Limited (ASX: 5GN)

5GN Data Centres capacity exceeds 600 racks

As an Australian telecommunication company, 5G Networks Limited (ASX: 5GN) engages in delivering boundless digital experience to the customers through services like data connectivity, cloud and data centre.

Australian Pacific Data Centres (APDC) has been successfully acquired by the company recently, for a cash consideration of $3.5 million. Key highlights of the acquisition are:

  • Unlocking of several cost synergies with expected benefits to be circa $500,000 of annualised savings starting H2 FY20;
  • Huge capacity of Pyrmont Data Centre with over 150 racks and the possibility for future development;
  • Built of Tier 3 designed data centre to leverage the chief standards of security and access control;
  • Combined capacity exceeds 600 racks with Data Centres in Adelaide, Melbourne and Sydney;
  • Foundation for CBD and inner Sydney fibre network expansion to key clients.

The company announced $0.76 per share as the Issue Price of shares for its Dividend Reinvestment Plan Price for the 2019 100% franked ordinary dividend payable on 18th October 2019.

At the market close on 16th October 2019, the company's stock was at a price of $ 0.985, surging up 10.674%, with a daily volume of ~1,497,717 and a market capitalisation of approximately $58.29 million. On a year to date basis, the stock has provided the return of 111.90 percent.

Vocus Group Limited (ASX: VOC)

VOC forecasts stronger performance

Vocus Group Limited (ASX: VOC) is a telecommunication company based in Sydney, Australia, operating globally and delivering services in data networks, internet, unified comms, cloud services and data centres. Formerly known as Vocus Communications, the company currently owns and manages the national fibre network and innovates to provide products and services with a customer centric approach.

According to the company reports, the FY20 guidance highlights the following points:

  • Underlying EBITDA (excluding share-based payments expected to be approximately $9m) – $359 million – $379 million.
  • Capital expenditure (ex ASC) – $200m – $210m including approximately 15m on Technology Future State and $30m on IRUs.
  • Stronger performance in the 2H of the year.
  • Cash conversion rate of 90-95% in the FY2020.

At the market close on 16th October 2019, the company's stock was at a price of $3.620, up 3.725%, with a daily volume of ~ 1,660,384 and a market capitalisation of approximately $ 2.17 billion.


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