Downside risk for TPG Telecom
About the author:
- Author name:
- By Nick Harris
- Job title:
- Senior Analyst
- Date posted:
- 24 April 2014, 8:27 AM
- Sectors Covered:
- Telecommunications, Technology
TPG Telecom Ltd (TPM) is a high quality company but we see downside risk with the Vertigan (NBN) review looming.
TPM's trading multiple looks very stretched to us and share price momentum is finally waning. Clarification of how the NBN will position itself relative to infrastructure-based competitors such as TPM is the key de-rating catalyst. In our view, recent industry news flow indicates that options are being considered to ensure the NBN remains viable, and that unregulated infrastructure competing directly with the NBN Co will not be allowed. Such options are to the detriment of TPM.
Investment view
We had previously set our price target at A$5.98 which applied a 30% market optimism premium to our A$4.60 valuation. We have trimmed our long-term margins and removed this premium, and our revised target price is now A$4.44. We move to a Reduce recommendation ahead of further NBN review news flow in June 2014.
More information
Morgans clients can access our detailed research report on TPG Telecom (TPM). If you are interested in finding out more, please contact your nearest Morgans office.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
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