The TPG Telecom Ltd (ASX: TPG) share price is under the spotlight after reporting a mixed FY21 result, with a bigger dividend. At 11am the TPG share price is down 4%.
TPG is one of the largest telcos in Australia with brands like Vodafone, iiNet and TPG.
TPG FY21 result
The telecommunications player revealed its result for the 12 months to 31 December 2021.
- Total revenue declined 3.1% to $5.3 billion
- Operating expenditure improved 4.4% to $1.08 billion
- EBTIDA dropped 3.2% to $1.73 billion
- Net profit after tax (NPAT) fell 10.6% to $110 million
- Free cash flow rose $568 million to $410 million
- Final dividend up 13.3% to 7.5 cents
Cost synergies
TPG is working hard on finding the cost synergies after the merger between Vodafone and TPG – this was one of the main selling points of the merger. The company said that cost synergies are ahead of schedule. Between $125 million to $150 million will be realised in FY22, one year early.
The merger also means that the combined entity won’t have to buy as much spectrum to be successful.
Subscriber growth
TPG revealed growing momentum in its subscriber numbers, which could be promising for the future and the TPG share price.
In mobile, it saw net mobile subscriber additions of 33,000 in the three months to the end of January 2022, indicating that positive momentum is returning. TPG is focused on sustainable subscriber growth as restrictions subside. A regional network agreement with Telstra Corporation Ltd (ASX: TLS) delivers increased population and geographic coverage.
TPG is also accelerating it’s metro 5G network investment with another 1,000+ sites in 2022 after delivering 1,000+ in 2021. The upgrades will be largely complete in 2025.
In fixed, the fixed wireless subscribers grew to 80,000 in 2021. It’s targeting at least 160,000 by the end of 2022.
In ‘enterprise’ the company is looking to reach more than $1 billion of revenue by FY25.
Other initiatives
TPG acknowledged that it is working on monetising its passive infrastructure like towers and rooftops. It could also do asset sharing, like with Telstra, to enhance roaming agreements.
Dividend growth
TPG’s board declared a final FY21 dividend of 8.5 cents per share. This was a 6.25% increase on the FY21 interim dividend of 8 cents per share and a 13.3% increase on the FY20 final dividend.
This brings the FY21 dividend to 16.5 cents per share, which is a dividend yield of 4% including the franking credits.
Summary thoughts on the TPG share price and result
There are some promising signs for TPG. If it can get more customers using its mobile network-powered home internet, then this would lead to much higher profit margins for the business.
The telco thinks that 5G could offer an opportunity. The end of pandemic impacts and NBN transition can help profit.
Management also think that there are opportunities for TPG in enterprise and wholesale as the market evolves. The merger synergies also offer compelling profit growth potential.
I think TPG looks pretty cheap, with the TPG share price falling 16% over the past year. I wouldn’t want to buy it directly, I’m not sure about the long-term compounding potential of the business. But I am satisfied to get TPG exposure through my Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) holding.
