TPG Telecom Ltd director buys $862k in shares

Shares in internet services business TPG Telecom Ltd (ASX: TPM) are sliding again today as the after effects of its softer-than-expected earnings guidance continues to shake investor confidence.

On September 20 the company updated investors, inter alia, to expect underlying EBITDA to come in between $820 million to $830 million for FY17, which would be up around 6.5% on FY16 at the mid-point of the guidance range. The mid-single-digit underlying earnings growth expectations were attributed to falling margins on its consumer broadband offerings as subscribers migrate to lower-margin NBN services.

The update surprised analysts who were quick to downgrade their price targets and the large share price falls were no big surprise given this was a richly valued business prior to its profit guidance update.

However, it appears TPG director and Washington H. Soul Pattinson and Co Ltd (ASX: SOL) chairman Robert Milner thought the shares offered good value at $8.62 after buying $862,500 worth on September 21.

As the common sense saying goes directors will sell shares for many reasons, but they generally only buy because they believe the shares are undervalued. Now Milner does have plenty of spare cash, but $862,500 is not small change and as a respected investor and certified TPG insider his vote of confidence is a good sign for shareholders.

Of course the other side of the coin is that TPG may be entering a low-growth phase and that the shares are overvalued thanks to an NBN-induced hangover on the horizon. However, TPG is investing heavily in its own fibre-to-the-basement infrastructure to offer a high-margin NBN alternative to consumers in higher density areas.

Shares in TPG’s primary rival Telstra Corporation Ltd (ASX: TLS) have also been sliding over 2016, although it remains primarily a mobile operator that is well known to be in an ex-growth phase primarily due to its scale.

TPG Telecom is more of a growth stock than a dividend stock, however if you're interested in quality dividend shares then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor Tom Richardson owns shares of TPG Telecom Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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