TPG 'Plunge' Misses The Bigger Picture
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The media has made a big song and dance about how TPG Telecom (TPM) shares ‘plunged’ yesterday after the shares came out of a trading halt to allow it raise around $400 million to help finance its new $1.9 billion Australian mobile phone network and associated electronic spectrum.
Seeing the fund raising was done at $5.250 a share, the plunge which the media said “wiped” $1 billion off the value of TPG, should have pushed TPG’s share price sharply lower to accommodate the extra shares and dilution of existing holders. And that’s what happened.
A big drop like yesterday’s was to be expected especially if the shares had been issued at a discount to the last sale price of $6.42 before the halt was sought, which they were.
The company said on Tuesday it had completed the institutional offer, raising a total of $81.5 million in addition to $238 million tipped in by chief executive David Teoh and other major shareholder, Sydney based investment group Washington H. Soul Pattinson.
“We are very pleased with the strong support that our institutional shareholders and new investors have shown for the offer and for our mobile strategy, which we are tremendously excited about,” TPG chair, David Teoh said in a statement to the ASX. That’s what happened to Downer shares after it raised $1.1 billion for its badly argued $1.3 billion bid for Spotless. Downer shares fell under the $5.92 issue price. TPG shares didn’t. According to the market the TPG plan is a real chance - certainly the sharp sell off in Telstra shares tells us the real story - not yesterday’s fall in the TPG share price.
The close of $5.50 was a fall of more than 17%, but the media forgot to add back the value of the expanded capital.
Some analysts got cold feet about TPG’s mobile network move (and a smaller near $300 million plan in Singapore) with several downgrading their price targets for the telco led by Credit Suisse cutting its price target to $5.50, from $6.20, while maintaining a sell rating.
But Morgan Stanley maintained a buy rating with a $10 price target.
Analysts are split - 6 analysts rate TPG a sell while the same number have it as a buy.
TPG last week agreed to pay $1.26 billion for a chunk of the nation’s 4G mobile spectrum and revealed it would spend another $600 million building a 4th national (80% coverage) mobile network.
TPG entered a trading halt last Wednesday, prior to the announcement, and detailed a $400 million share entitlement offer to fund construction of the new network.
Telstra shares fell 3.8 per cent at $4 yesterday, another five year low.
The nation’s largest telco’s shares have fallen over 12% since last Tuesday. That’s upwards of more than $4 billion. That’s the real story, not the ‘plunge’ in TPG shares yesterday.
TPG shares will suffer a real ‘plunge’ if anything goes wrong with its mobile network plans in Australia and Singapore, such as a rise in costs, or delay.
Telstra got some support from Deutsche Bank analysts who yesterday upgraded it to a buy, arguing that its selloff has gone too far.
“Despite the negative impacts from a new mobile entrant we believe Telstra is now an appealing investment given a sustainable dividend yield of 6.6 per cent, potential capital return, [a] 39 per cent price-earnings discount to the market and upside implied by our target price," the analysts wrote.
That’s a lonely view at the moment, but analysts will be watching TPG for regular updates on how its mobile move is going.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.