TPG Telecom (TPG) - Capital management on agenda
October 24, 2024
TPG Telecom provides mobile and fixed-line telecommunications services to consumers and small- to medium-sized businesses, principally through its Vodafone Australia, TPG, iiNet, Internode, Lebara, AAPT and felix brands.
TPG has sold its fibre network infrastructure assets and its fixed-line enterprise, government and wholesale business to the unlisted Macquarie-controlled Vocus Group, for $5.25 billion. The sale leaves TPG with its Vodafone Australia mobile operation and its fixed-line consumer and small business division, which will ease back network capacity from Vocus. The company will use expected net proceeds of $4.65–4.75 billion to return capital to shareholders and for investment in its mobile business, although details are yet to be provided.
In Ord Minnett’s view, TPG would have capacity for capital management of circa $1 billion after debt reduction of $3.7 billion (which is our base case). Post the sale, we have downgraded our recommendation to Accumulate from Buy on valuation ground, and our target price to $5.25 from$5.50. There is upside on offer, particularly if our estimate of capital management is too low, but we also note potential overhang risks given the company’s convoluted shareholder structure and history.
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