TPG Shares Dive 5% After Downgrade
CLSA analyst, Robert Samuel, has reportedly downgraded TPG Telecom from ‘outperform’ to ‘underperform’, ahead of its merger with Vodafone Hutchinson Australia. Samuel claims the telco’s lacklustre results reflect tightening underlying business growth.
Shares in TPG Telecom lead midday index decliners, with the stock down 5.28% after 2pm.
As per The Australian, Samuel is concerned TPG may not be able to offset NBN-related margin pressures in the coming year, with 2019 guidance tipped to be 2.5% – 5% lower YoY.
Samuel claims TPG Telecom stock is fully priced at 20×2019 earnings, downgrading the company whilst changing his price target from $9.08 to $10.46.
As previously reported, the telco post a 4.6% slump in full-year net profit [after tax] to $396.9 million.
For the full-year, TPG’s consumer segment EBITDA dived $10 million, driven by NBN margin pressures.
Results were offset by $17 million EBITDA growth within TPG’s corporate division.
“TPM lost share in NBN and FTTB has not been able to offset this. The Corporate division hardly grew when we exclude the fibre contract with VHA and price deflation continues,” claims Mr Samuel.
“The main driver of the business form here is therefore the potential merger with VHA which makes strategic and financial sense but not without its challenges given the government’s 5G ban on Huawei.”
The proposed merger is pending regulatory approval, and is set to create a $15 telco powerhouse, intensifying competition against Telstra and Optus.