September 19

TPG Telecom’s Growth Prospects and the Potential Sale of Non-Mobile Fibre Assets

TPG Telecom Limited (TPG) is an Australian-based multi-media full-service telecommunications company providing consumer, wholesale and corporate telecommunications services. The business offers voice, internet and data solutions to a range of customers from consumer to SME, corporate and government sectors.

We read nothing into the due diligence extension for the possible sale of TPG Telecom’s non-mobile fibre assets.

The original Sept. 6, 2023 deadline for exclusive “tyre-kicking” was just a marker to project a sense of urgency on to Vocus. The extension to Oct. 4 is understandable, as there is plenty to consider. The maintainability of the $550 million in enterprise, government, and wholesale earnings from the fibre assets and the details of service and lease arrangements with TPG’s mobile unit after any sale are the obvious areas of focus. Further, for a potential price tag of $6.3 billion, it is fair enough that Vocus wants a little more time to assess TPG’s fibre unit in general. After all, it is an amalgamation of a series of transactions, including Pipe Networks, AAPT, VHA dark fibre, and Vodafone’s enterprise operations over the years. In the meantime, the pace of earnings recovery is encouraging for TPG’s consumer unit. The 8% lift in mobile service revenue in the June half was market-leading, pushing TPG’s service revenue share to 14.1%, from 13.7% (our estimates). It drove the 7% increase in June-half consumer EBITDA and the 120-basis-point lift in EBITDA margin to 30.3%, despite an anaemic 1% lift in broadband revenue and a 2% fall in broadband gross profit. There is no change to our $7.40 per share fair value estimate for TPG, and shares trade at a steep discount to this intrinsic assessment.


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