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What to expect from TPG Telecom Ltd’s (ASX:TPM) results on Tuesday

On Monday the TPG Telecom Ltd (ASX: TPM) share price finished the day higher as investors fought to get hold of shares ahead of the telco company’s full year results release on Tuesday.

The TPG Telecom share price finished the day almost 4% higher at $8.72.

Was this a good move?

This time tomorrow we’ll know whether this was a smart move or not, but in the meantime here’s what to expect from TPG Telecom’s results tomorrow:

According to a note out of Goldman Sachs, its analysts are expecting the company to report a 1% rise in revenue to $2,509 million and a 1% decline in EBITDA to $830.6 million for FY 2018. This compares to the company’s EBITDA guidance of $839 million.

On the bottom line the broker has forecast flat net profit after tax of $416 million and earnings per share of 44.8 cents.

Goldman is expecting strong growth from its Corporate segment, with segment EBITDA predicted to grow 13% on the prior year. Its analysts will, however, be looking out for commentary around the decision of rival Telstra Corporation Ltd (ASX: TLS) to target mid-market enterprises through its Connected Workplace launch by the end of the first half of FY 2019.

Elsewhere, the broker will be looking for a rebound in broadband subscriber numbers. In the first half of FY 2018 TPG Telecom saw broadband subscriber numbers slide due to declines from the iiNet brand. Goldman appears optimistic that it will have returned to growth again in the second half and has pencilled in solid growth across the TPG brand, offsetting further declines in subscriber numbers from the iiNet brand.

Looking ahead, Goldman appears to be hoping for more clarity on the merger with Vodafone Australia.

While the merger of the two companies is expected to result in substantial synergies due to their highly complementary network infrastructure, cross-sell opportunities, the rationalisation of duplicated back-end costs, and enhanced scale in network, IT and marketing procurement, no quantitative synergy targets or guidance has been announced yet. Tomorrow could be the day for that, all being well.

Should you invest?

Goldman has a sell rating and $7.35 price target on TPG Telecom’s shares at present. This implies potential downside of around 39% for its shares over the next 12 months.

While I’m not as bearish on the telco company as Goldman, I would agree that it is closer to a sell than a buy at these levels. In light of this, I would avoid the company’s shares for the time being and focus on other opportunities such as Macquarie Telecom Group Ltd (ASX: MAQ) or Over The Wire Holdings Ltd (ASX: OTW).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. 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 Scott Phillips.

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