TPG Takes The Long View On Mobile
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TPG has slashed its final dividend to preserve cash as it begins the investment build up for its new mobile phone network, as well as facing growing pressures from the NBN.
And it warned of lower underlying pre tax earnings in the 2017-18 year - normally a signal to investors to sell. But the shares rebounded strongly as investors seemed to accept the justification from the company.
“The board is confident that this course will prove in the long run to be the right decision for shareholders,” executive chairman David Teoh said in yesterday’s statement justifying the cut. He personally and the company’s biggest supporter, Washington Soul Pattinson will feel the impact of the cut on their dividends from the company.
The company cut its final from 7.5 cents a share in the 2016 financial year to 2 cents, citing the need to retain a “greater proportion of profits” to spend on its mobile roll out.
Full year payout was set at 10 cents a share, down from 14.5 cents last year after an 8 cent interim earlier in the year.
But the shares jumped nearly 10% at one stage as investors gave the move the thumbs up. The shares fell in afternoon trading (as did the wider market) but still ended the day 5.2% higher at $5.49.
And yet the same investors had sold down the company’s shares by more than 50% to Tuesday night’s close in the past year as the company surprised with downgrades, and then the plan to build its own mobile network after paying $1.3 billion for spectrum.
TPG yesterday reported a 16% increase in cash net profit, below analyst expectations.
It posted EBITDA of $835 million excluding irregular items, just ahead of its revised guidance of $820 million to $830 million.
Revenue rose 4% to $2.49 billion, in line with analysts’ expectations.
In September a year ago, the company shocked the market by revealing a profit downgrade, then in April the stock plunged again after Mr Teoh unveiled a $1.9 billion push into Australia’s mobile market, backed by a $400 million rights issue.
Looking ahead to the 2018 financial year, TPG said it is “anticipating another year of solid growth … but expects this to be offset by NBN margin headwinds:” which is usually taken as code for a lower profit could happen.
The company is guiding investors to underlying EBDITA of $800 million to $815 million, which would represent a decline of 3.3% at the midpoint against this year’s result.
Mr Teoh said the company's Singapore mobile network is "on track to achieve the first milestone of nationwide outdoor service coverage before the end of 2018. Capex projections are currently looking to be within initial assumptions."
The first part of the Australian network, consisting of a “initial site clusters” in Sydney, Melbourne and Canberra in the middle of next year.
The company has maintained its guidance for capital expenditure for the mobile rollouts, with $200 million to $300 million to be spent over the next two years in Singapore, and $600 million to be spent in Australia over the next two to three years.
TPG's total broadband subscribers rose from 1.911 million to 1.936; the number of NBN subscribers accounted for most of this increase, and were up 143,000.
But the company's mobile subscriber numbers fell from 453,000 to 445,000.
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.