LACK OF ORGANIC GROWTH ENDS TPG'S WINNING ASX RUN

Written on the 21 September 2016

LACK OF ORGANIC GROWTH ENDS TPG'S WINNING ASX RUN TPG Communications (ASX: TPM) shares have dropped 6.7 per cent today, despite the company recording strong profit, EBITDA and earnings per share (EPS) growth in its annual report.

The Sydney-based company's purchase of iiNet nine months into the financial year had a solid impact on the final results, but investors are more concerned about the relative lack of organic growth in the company's consumer and corporate divisions.

The consumer division grew EBIDTA by 7 per cent to $255.7 million, while the corporate division grew EBITDA by 11 per cent to $269.3 million.

Overall, underlying EBITDA was up 60 per cent to $775.3 million, while net profit after tax increased 46 per cent to $114 million and EPS grew 39 per cent to 43.1 cents per share.

The purchase of iiNet had a significant impact on TPG's results, including a $242.6 million contribution to earnings and a $73.1 million gain on the group's previously-held interest in the company.

The iiNet contribution and a $17.6 million profit on the part-sale of Vocus lifted overall EBITDA to $849.4 million, a 75 per cent gain on the previous year.

The company even increased its final dividend to 7.5 cents per share, bringing the total FY16 dividend to 14.5 cents per share, a 26 per cent increase on the previous year.

But there are some key concerns for investors, including the lack of potential takeover targets for the acquisitive company, the potential impact of the NBN on the company's business model and the fact it is already trading on a high price-to-earnings ratio.

Optus and Vodafone were rumoured takeover targets for TPG, but there was no word on the likelihood of this happening in the annual report.

The company has enjoyed strong share price growth over the past five years, but is today trading at a low not seen for more than two years. Only five days ago the company was trading at close to $12 per share.

One avenue for TPG's continued growth through its plans to move into the Singapore market, where it has lodged an expression of interest to bid for 75Mhz of spectrum. If successful in this bid, the company says it will move quickly to establish a 'substantial' Singapore operation.

The directors of the company have forecast underlying EBITDA for the Group for FY17 to be in the range of $820m to $830m.



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