Is the corporate opportunity for TPG overlooked?
After a meteoric rise, it’s prudent to question whether there is value left in a share price, and it’s a question we have been pondering on TPG Telecom Limited (ASX: TPM) for quite some time. There is plenty of media on the consumer side of the business, particularly with regard to its positioning against the NBN, but in this post I’ll be discussing the corporate side, which is also deserving of attention.
Corporate services revenues in TPG showed little growth from FY13 to FY14 ($244.2 million to $242.2 million) however they got a shot in the arm in 2014 with the acquisition of AAPT. AAPT has given the business not only a larger portfolio of clients, but also an extended telecommunication infrastructure network.
This we feel is important. TPG has proven in the past to be a savvy acquirer of assets. In AAPT, the business can likely see the many uses for these assets to further extend its reach into telecommunications services and sidestepping the need, for example, to paying Telstra Corporation Limited (ASX: TLS) access costs to use theirs. Hence, they now have an offering that can be provided at a lower cost to corporate customers.
And because of this, we note that in certain products, TPG’s price differential to Telstra is material with some services now offered at one third (1/3) of the cost. Clearly that’s pretty compelling.
Add a seriously competitive service offering/products into the Australian corporate sector, which is a huge opportunity, valued at A$9 billion, and we can easily see scenarios whereby their current 7 per cent market share will be meaningfully higher in the years ahead. Of course, with this should come an improvement in revenues, earnings and cash flows and thus a substantial rise in TPG’s market valuation.
Not much has been given away by TPG’s management on the potential of this side of the business, they keep their cards pretty close to their chest, but if you look just a little bit deeper, we can readily identify a multiple of growth angles, many of which should produce a much larger business than it is today if executed well.
Scott Shuttleworth is an Analyst with Montgomery Investment Management. To invest with Montgomery, found out more.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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