The TPG Telecom Ltd (ASX: TPM) share price went nuts today, rising 4%, after it reported its half-year results for the period ending 31 January 2019, announcing a net profit after tax (NPAT) of $46.9 million, signalling its intention to the ACCC.
TPG recognised an impairment of $227.4 million due to the decision to cease the rollout of the Australian mobile network, as David Teoh continues to mount pressure on the ACCC for approval of a joint venture with Vodafone Australia.
Key Results
TPG reported:
- Underlying revenue down 1.5% to $1.24 billion
- Underlying EBITDA up 2.8% to $424.4 million
- Underlying NPAT up 3.5% to $225.2 million
- $227.4 million impairment relating to ceasing Australian mobile network rollout
- Statutory NPAT $46.9 million
- An interim dividend of 2 cents per share (cps) fully franked.
Segment Results
TPG reported that it’s margin from switching consumers from ADSL to NBN services resulted in a shrinkage of $20 million EBITDA for the period, along with $8 million from iiNet home phone users decreasing as they no longer need a phone line once connected to the NBN. With a reduction of employment and overhead costs, the combined effect was a $26 million EBITDA shrinkage, or $52 million on an annualised basis.
I think further shrinkage of the consumer segment’s profit can be expected as the NBN continues to be rolled out.
The good news for TPG shareholders is that shrinkage was offset by $39 million, driven by its corporate division, mainly relating to fibre services provided to Vodafone Australia, which increased EBITDA margins from 42% to 48%.
All About The ACCC Decision
TPG flagged the impairment following a decision to cease its Australian mobile network rollout to the market in February.
Today’s investor presentation and report made the ACCC decision the key factor for the company’s future going forward. With only 430,000 mobile subscribers on a mobile virtual network operator (MVNO), it seems hard to mount a case for TPG to be able to compete with Telstra Corporation Ltd (ASX: TLS) and Optus and fund billions of dollars of capital expenditure associated with the mobile expansion.
Rask Perspective
While it may seem like David Teoh is playing hardball with the ACCC, it is becoming increasingly difficult to see how TPG can compete against the likes of Telstra without a joint venture with Vodafone Australia. This is especially the case after the Government decision to ban Huawei equipment.
Obviously, the ACCC decision to prevent the joint venture would be bad news for TPG and its shareholders, but my guess is that the ACCC will allow it as Vodafone Australia isn’t profitable and it’s better to have a market with three major providers rather than two.
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