TPG – Ringing up growth
Heathcare, telecommunications and financial services are three of only a handful of sectors enjoying tailwinds in the otherwise lacklustre Australian economy. TPG, the telephone and internet service provider we owe some thanks to for bidding for our iiNet shares, has just reported their results.
Perhaps unsurprisingly, and with the exception of the Corporate division, the company demonstrated it is possible to invest successfully, in any market and economic environment, if you are able to uncover extraordinary businesses with the right industry and competitor dynamics.
In reviewing the first half results (comparing 1H14 to 1H15), we share a few observations:
- Revenue is up 59 per cent to $627.3m, 2.2 per cent ahead of consensus (includes AAPT acquisition)
- Earnings Before Interest Tax Depreciation and Amortization (EBITA) is up 43 per cent, to $222m, 6.3 per cent ahead of consensus (includes AAPT acquisition)
- Net Profit After Tax is up 18 per cent to $106.7m, 9 per cent ahead of consensus (includes AAPT acquisition). Result lowered by higher interest expenses, depreciation & amortization charges relating to the acquisition of AAPT.
- 38,000 net broadband ads, 1.3 per cent churn (roughly similar to iiNet)
- Flat to slightly negative market share growth in the corporate space
- Interim dividend up 22 per cent to 5.5c per share
- TPG has raised its full year EBITDA guidance from $455m-$460m to $480m-$483m. Capital expenditure forecasts were also raised from $100m-$120m to $135m-$145m.
Consumer
- Mid single digit growth (6 per cent from the second half of 2014, 12.9 per cent from the first half of 2014) to $308m coupled with cost control expanded gross margin from 48.22 per cent to 51 per cent and EBITDA margins from 36.29 per cent to 38.01 per cent from the first half of 2014 to the first half of 2015. This was largely driven by a lease on some telecommunications infrastructure that expired and was not required to be renewed.
- 38,000 net broadband additions is being reported by some analysts as weak however looking back it doesn’t appear abnormal. They are doing well relative to other competitors. (25,000 at IIN, 26,000 at MTU)
Corporate
- No market share growth which is disappointing. Notably, Corporate is now TPG’s largest business line (Consumer: $308.0m, Corporate: $319.3m). EBITDA growth has been achieved through staffing cuts (we estimate approx. $12m of a $46m personnel expense line) in AAPT and replacing unprofitable contracts with profitable ones (so to a small degree the firm has shown that it can obtain customers, but we’re going to need to see more of this in the second half of 2015 result).
- These measures (amongst others) has resulted in a $23.8m lift to EBITDA.
Montgomery funds do not currently own shares in TPG.
Scott Shuttleworth is an analyst at Montgomery Investment Management. To invest with Montgomery, find 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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Carlos Cobelas
:
it’s hard to know what share price to take for this company which clearly has good growth prospects. I’ve been tempted many times to buy but have balked at the seemingly expensive share price, although as shown by other growth companies price charts it might turn out to be a mistake as the company gets bigger and better and the price continues to rise ( Domino’s pizza, REA etc spring to mind ). As an Iinet shareholder I am happy for the jump in Iinet share price, but as an Iinet customer I am disappointed in the take over. Iinet customer service has been fantastic to me ( eg tech support at 1AM from a very smart & helpful South African ; I believe their after hours call centre is in Cape Town ) whereas from everyone I have heard TPG customer support is either woeful or non existent.