Company result

The result is a lot better than it looks, at first glance.

Reported numbers show sizeable increases, as per the combination of TPG assets with Vodafone, and pro forma numbers, which make for an apples to apples comparisons, show modest declines, which would otherwise suggest things aren’t going so great, post the merger.


Like most things, a little detail sheds a lot of light. Firstly, broadband subscribers grew strongly, with TPG winning awards in the space with their various offerings.


Secondly, the mobile subscribers net adds decline levelled out substantially, which is quite visible on the half on half comparison…


…but much more visible on the quarter by quarter numbers. That’s a crucial graph. It is normal to see customer churn during an acquisition/merger, as competitors target your customer base, and migrations to a new network create that opening. Defending, and winning back, customers, and growing from that new installed base is common.


Vodafone have also had a few high profile network outages, which occurred at likely the worst maximal moment. Because of these two points, seeing the net subscriber declines stabilise is very important. However the main driver of decreased subscribers, is COVID itself, with the 2020 stock of customers declining substantially as the proportion of inbound tourism collapsed due to closed borders. This will pass, and represents a strong potential earnings driver in time (making TPG something of a “COVID recovery” play, within telecos).

The NBN margin headwind, a drag for several years now, is almost finished, with only 73K DSL subscribers left. That drag was responsible for ~$25m of EBITDA, over the past year.

Not only should it cease to drag after the next half, as those final subscribers move onto the NBN network, but it should also be a much smaller impact during the half.

Segment ARPU’s also appeared to fall, however, $2.5 of that decline, from the 2019 APRU levels, represents the decline in roaming charges, a function of COVID. Eventually, that will cease to matter, as COVID is contained, as travellers return.


What’s important about that observation is that the decline in roaming doesn’t reflect an escalation of aggressive competition. On updated numbers (for TLS) the mobile postpaid ARPU moved higher to c$48, one of the first meaningful APRU lifts in several years. That bodes well for the industry, over time, and secondly, does permit TPG to position itself solidly as the “lower priced, value based competitor”, compared to the premium priced incumbent, roles that TPG and TLS are familiar with.

This bears reexplaining. A) we don’t think TPG are trying to be aggressive with pricing outcomes shown above, as the explanations about roaming bear out. However B) it does keep the price differential at more normal levels, which keeps both companies inline with their usual competitive distinctions.

Otherwise, TPG’s ability to bypass the NBN with a wireless offering looks to be proceeding well, with a tripling in the home wireless base. As the 5G rollout continues (with TPG noting they are ahead of schedule, ahead of expectations, and progressing well) the ability to fully monetise this offer will likewise grow.

Mgmt flagged ~$38m in synergies were delivered, and expect a full year run rate closer to $70m, which will support full year earnings.

Overall, it is a much better result than either the headline numbers, or the market reaction (stock off ~3%) might have suggested.

The news of a possible sale of the telco tower/communication infrastructure assets is also very good news, given the fairly enormous multiple that TLS (Telstra) were able to achieve, and we expect to hear further positive news flow over the next few months as the effort progresses.

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