Shares in entrepreneurial telco operator TPG Telecom Ltd (ASX: TPM) have dropped 3% today after research analysts at Goldman Sachs group slashed their share price target on the business.
Financial news services are reporting that Goldmans now values TPG shares at just $6.43 after comparing its earnings outlook to giant telco rival Telstra Corporation Ltd (ASX: TLS) with regard to the arrival of the NBN and both companies' plans to win mobile market share.
Goldmans reportedly values Telstra shares at $5 and has slapped a "buy" rating on the telco thanks to its superior network and dominant competitive position that gives it room to cut prices if necessary.
In contrast TPG has a long road ahead of it in building its mobile infrastructure across Australia and Singapore, while also dealing with the potentially margin-crunching effects of the government-sponsored NBN residential broadband network.
However, TPG is still lifting the margins at its iiNet home broadband business has a healthily growing fibre-optic enterprise services business and a potentially substantial return on investment to enjoy from its fibre-to-the-basement business.
The company remains founder led with heavy insider share ownership and despite the large upcoming capital expenditures I still suspect TPG shares at today's price of $5.70 could be a bargain opportunity.
The kicker is a valuation on around 13x analysts' estimates for earnings per share of 45 cents in FY 2017, with analysts generally expecting earnings per share to fall over H2 FY 2017 and FY 2018.
The group recently raised equity to fund its $1.3 billion mobile expansion which has hit the share price over the short term, although if it can win mobile market share the stock could catch a powerful updraught in its FY 2018.
