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Are TPG Telecom (TPM) Shares Cheap At Current Levels?

Most of us remember TPG Telecom as one of the greatest shares in the market, having slowly but consistently climbed upwards from a low near the $1.30s in late-2011.

The stock was one of the most talked about stories (chart below), and at Equity Story, we managed to put out some good trades!

However, since its peak, the stock along with the majority of telcos, saw a rapid share price decline. Currently hovering around $5.20, the question is whether if now is the time to be buying!

Fundamentally speaking, the FY17 results were excellent with an exceeded guidance. This saw a spike in the share price that saw almost 10% in highs reached intra-day. Definitely a positive reaction from the market however today we see the price trading yet again around the $5.20 levels.

Underlying NPAT (ex-one-off events) was up 16% to $417.3M which put EPS up 12% to 48.3c/share. This puts TPM on ~11x FY17 earnings which to us seems ridiculous considering it is still growing!

Compare the above and see how the charts have moved in the same period.

Essentially the huge fall in share price reflects what we believe is misunderstanding as well as an overall depressed sentiment regarding the telco sector. Yes, the guidance for FY18 is that there will be growth that unforunately is expected to be offset by NBN margin headwinds, but Executive Chairman, David Teoh, has done wonders for the Company and we back him to come up with another strong year.

We like that the dividends were cut in order to reinvest into the business (sometimes it is necessary, and David Teoh who has ~34.4% of the Company, will be taking a hit along with the other shareholders), and focusing on the Singapore and Australia mobile network rollout.

No doubt it will be a difficult journey for TPG Telecom, but if things go to plan, we believe shareholders will be rewarded. Short-term pain for long-term gain. If this suits your investment criteria, definitely have a closer look and consider it!

Buy as a longer-term play!

 

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