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TPG dives on soft results, guidance

AAP logoAAP 19/09/2016 Lilly Vitorovich

Investors wiped more than $2 billion off the market value of TPG Telecom after the former market overachiever delivered soft underlying earnings and outlook guidance well below market expectations.

TPG revealed during an analyst call that it will be spending more money to "protect their market share", amid rising competition in the broadband space, Morningstar analyst Brian Han told AAP.

The company on Tuesday reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 60 per cent to $775.3 million for the year to July 31, but below market consensus of $779 million.

For the 2017 financial year, TPG forecast underlying EBITDA of between $820-$830 million, below market expectation of $881 million, according to IG market strategist Evan Lucas.

The company is trading on a high price-to-earnings ratio of 24.4 so the market expects a lot and "wants more", Mr Lucas said.

TPG - which is led by media-shy founder David Teoh - has been the star performer of the industry in recent years because of its strong growth pipeline.

The company's $1.56 billion takeover of rival iiNet last year elevated the group to the nation's second biggest, bumping Optus to third spot.

Competition is heating up, however, as new players such as Amaysim look to exploit the acceleration of the national broadband network rollout.

TPG also forecast that its capital expenditure will rise to $370-$420 million in 2016/17 from $281 million a year earlier due to outlay on mobile spectrum, international capacity purchases and "substantial" fibre rollout.

TPG recently lodged an expression of interest to bid for mobile spectrum Singapore, with aspirations to become that nation's fourth mobile communications operator.

Research firm Telsyte principal analyst Foad Fadaghi said TPG had been a darling of the investment community and had been priced highly in recent years with continued growth and more acquisitions expected.

"An earnings miss will amplify the downward sentiment and cast a doubt over its ability to continue to grow, given its secretive nature and less local acquisition opportunities," Mr Fadaghi said.

"The losses today wiped a full year's growth off the stock indicating a sharp correction, and might be a reflection of the increased competition in the lower end of both the mobile and fixed telecoms market in Australia."

TPG's consumer business added 64,000 broadband customers over the year, taking the total to 885,000, while iiNet had 983,000 broadband subscribers.

TPG shares closed $2.53, or 21.4 per cent, lower at $9.28 , taking the company's market capitalisation of $7.9 billion, down from $10 billion on Monday.

Net profit rose 69 per cent to $379.6 million, underpinned by new customers and the contribution from iiNet.


*Net profit up 69pct to $379.6m

*Revenue up 88pct to $2.39b

*Final dividend up 25pct to 7.5 cents, taking full-year dividend to 14.5 cents, up 26 per cent.

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