Looking for value in TPG

Looking for value in TPG

I recently attended TPG Telecom Limited’s Annual General Meeting in Macquarie Park. Below is an ‘over-the-shoulder’ view of my notes which you may find useful.

• Fiber To The Basement (FTTB) rollout progress has been slow – as noted before, the firm is required to get signed agreements from the body corporate of each block of apartments that they wish to wire up. Currently they are targeting premises in Ultimo & Pyrmont.
• TPG management is still unsure on the final conditions that the Department of Communications will put on their telecommunications license. The Department has been reviewing these conditions after the ACCC announced that it would not contest TPG’s FTTB rollout earlier this year.
• In regards to the wireless spectrum the firm bought in 2013 for $13.5 million, they are currently running experiments to test its capabilities and using it as Wifi for their own building. No detail on future plans.
• TPG is building up franking credits but has no intention to pay them out yet – they’re focusing on using excess cash to pay down the $460 million in debt used to buy AAPT.
• David Teoh (CEO talked about Covata Limited (ASX: CVT), a company in which TPG holds a 10 per cent stake. The firm has secured a license to distribute Covata’s encryption technology software in Australia.
• In terms of remuneration, a shareholder requested a review of TPG’s short & long term incentive programs. TPG management responded that they are happy to maintain the current remuneration package as it is and referred to the firm’s results as evidence of its effectiveness.
• A shareholder asked about Vodafone Australia but TPG is not willing to comment, the same goes for its investment in Amcom Telecommunications Limited (AMM).
• Management noted that TPG overall is tracking well against its corporate plan and reiterated its expectation of $455 million – $460 million EBITDA in FY14.

In the grand scheme of things, it appears that whilst Fiber To The Basement is a useful add on for the firm, its potential is limited by the current plan to only rollout the service to 500,000 premises (out of a projected 7-8 million by FY20).

Retail broadband services and corporate services appear more likely to drive a larger share of long term value for this firm (note my blog earlier on this can be found here).

I’d also add that whilst there is plenty of speculation over corporate actions, such as the Vodafone acquisition, or their strategic investment in AMM, value investors are likely best served by focusing on organic growth and hard facts.