When you think of telecom companies, what company pops into your head?
Probably the first is Telstra Corporation Ltd (ASX: TLS). However, there are a number of second-tier companies that you might be using right now which have growth prospects equal to or greater than Telstra.
Here are three that stand out as solid performers. It's a highly competitive industry, but they're still pushing forward and setting themselves apart with new tech development.
TPG Telecom Ltd (ASX: TPM)
In addition to being a mobile and broadband service provider, it is developing an alternate high-speed broadband network within urban areas to that of the National Broadband Network. It acquired internet service provider, AAPT, recently for its extensive network infrastructure and is using it to extend its current fixed-line coverage.
Over the past five years, earnings have risen dramatically. Analyst consensus forecasts are for a possible 19% average annual increase in earnings for the next two years. The PE is 29, so you are paying a premium for this growth. Its yield is 1.3% fully franked.
iiNet Limited (ASX: IIN)
The company recently exceeded $1 billion in revenue for the first time when it reported a 19% increase in full year underlying earnings per share (EPS). It has about 20% of the total NBN market as subscribers. It is expanding into the east coast regions as the NBN is rolled out across Australia. It has won some market share recently and is launching Australia's largest public wi-fi area in Canberra.
Earnings growth is forecast for about 15% annually over the next two years. The PE is 19 and the stock offers a 2.8% fully franked yield.
M2 Group Ltd (ASX: MTU)
This company operates such brands as Dodo, iPrimus and Commander. Full year underlying net profit for FY2014 came in at 60% higher. Like iiNet, it made over $1 billion in revenue for the first time. In addition to telecommunications, the company has entered the utilities payment space. Bundling that with broadband is especially attractive to businesses looking for ways to save money and manage power consumption. It has launched its 4G mobile service and had strong organic growth in customer numbers in the past year.
Of the three, M2 Group has the smallest earnings growth forecast; about 9% annually for the next two years. Accordingly, its PE is 14. It does have a fully franked 3.7% yield which is higher than the others.
All see the power and advantages of being strong service providers within the national broadband network. I prefer TPG Telecom because they could operate as both a wholesale and retail provider since it owns its own network infrastructure, which could give it some pricing power and better margins.
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