TPG Telecom Limited (ASX: TPM)- Profit knocked down on nbn rollout and power price hike

In the early trade today, TPM share price slid slightly after the company announced lower FY18 profit of $396.9 million, down 4.1% on FY17.

In the full year result announcement for the period ended 30 June 2018, the company posted 5.6% of decline in the earnings before interest tax and depreciation (EBITDA) to $841.1 million. It is because the telecom company TPM has recognized the gross margin erosion driven by the headwinds from continued impact of customers’ migration to National Broadcast Network (nbn) and rising electricity prices. The drop of $16.9 million in the company’s annual profit has brought FY18 EPS to 42.8 cents, down 10.6% on prior year.

But the company has been successful in leaving behind its earlier guidance of underlying EBITDA of between $825 million and $830 million, coming in at $841 million. That means it remained the same as that of actual EBITDA on the back of no material irregular items incurred during the year. It has also been seen that compared to previous year, there has been improvement in FY18 underlying results, as EBITDA was up by $6.1 million, underlying profit increased 3.5% to $432.6 million and underlying revenue grew 0.5% to $2,495.2 million.

During the fiscal year 2018, the consumer segment of the company has taken a back seat with $17.3 million decline in EBITDA, driven by one-off items and lower margin. However, the corporate segment has bridged this gap by delivering the year-on-year growth of $17.3 million.

The Board of Directors has declared a Fully franked final FY18 dividend in line with the interim dividend of 2.0 cents per share, payable on 20 November 2018 to shareholders on the register on 16 October 2018. This reflects a 60% downtrend on the dividend paid last year, which was 10 cents per share. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

At the end of financial year 2018, it was observed that TPG had net debt of $1.3 billion, representing a leverage ratio of about 1.5 times EBITDA. Cash was $82.2 million as at 30 June 2018 while the group has generated $868.3 million cash from operation during the year.

Now, TPG’s possible merger with Vodafone Hutchison Australia (VHA) remains a silver lining to the future growth of the company. If the “merger of equals” between TPG’s small cell network and VHA’s mobile network goes through, the coverage and capacity of the combined group would potentially be elevated, thereby fueling the direction of revenues up-stream.

In the outlook for FY19 guidance, the group is expecting another year of EBITDA growth from its ‘business as usual’ (BAU) operations. It is anticipated to be in a range of $800 to $820 million.

With the announcement of lower earnings and profit, TPM share price dropped by 0.287% to $8.695 on 18 September 2018 (1:50 PM AEST). The stock has seen a performance change of 67.07% over the past one year.

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