TPG dials up profits

Telco records 41% increase in net profit

Internet service provider TPG Telecom Limited (ASX: TPM) has today announced a 41% increase in profit to $78.3 million for the six months to January 2013.

Impressively, revenues only rose by 10%, but adjusted earnings per share climbed by 26% over the previous period to 9.9 cents, showing that once telecommunications providers have their infrastructure in place, increases in revenue virtually drop through to the bottom line.

TPG also declared an interim fully franked dividend of 3.5 cents.

Broadband subscribers increased by 36,000 during the half year, close to double the growth in the same period last year and taking the total number of subscribers to over 630,000. Mobile subscribers climbed by 48,000 during the half, compared to 54,000 for the whole of the 2012 financial year. TPG also expanded its fibre footprint by 766km, which now exceeds 3,800 km.

Cash flows were strong, with operating cash flow coming in at $119 million, while free cash flow (excluding capital expenditure) came in at $86 million, which allowed TPG to repay debt of $54 million. Total gross debt now stands at $95 million, which appears fairly inconsequential, if the company can keep delivering growing free cash flow.

In further pleasing news for shareholders, average revenue per subscriber continues to grow.

Guidance for full year earnings before interest, tax, depreciation and amortisation (EBITDA) has been raised from $263-$273 million to $285-$290 million.

Foolish takeaway

TPG has grown from a small internet service provider into our third largest listed telecommunications company, with a market cap of over $2 billion, behind Telstra Corporation (ASX: TLS) and Optus – owned by Singapore Telecommunications (ASX: SGT), and ahead of competitor iiNet Limited (ASX: IIN).

No doubt TPG’s growth has been assisted to some extent by being in the right place at the right time – by taking advantage of the rise of smartphones and the take-up of ADSL and ADSL 2+ fixed broadband. Whether it can keep growing at historical rates remains to be seen.

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