It's been a torrid couple of years for TPG Telecom Ltd (ASX: TPM) shareholders, but there might be some light at the end of the tunnel according to Melbourne-based fund manager and professional investor Yarra Capital.
TPG has been hit by the government's construction of a national broadband network under the control of the NBN Company. It has destroyed the margins of telcos likes TPG and Vocus Group Ltd (ASX: VOC) as there's hardly any spread between what the telcos charge consumers and what they pay the NBN for access after you account for the additional operating costs of the telcos.
Moreover, TPG recently had its proposed merger with Vodafone Australia knocked back by the competition regulator the ACCC on some seemingly spurious grounds.
However, Yarra Capital believes there may be some good news when the ACCC hands down its final decision that is scheduled for May 9.
"We remain overweight the stock based on our positive view of the company's proposed merger with Vodafone. We expect the combined entity will unlock significant synergies and harness its infrastructure, scale and balance sheet to disrupt incumbents TLS and Optus through a lower-cost structure. As a result, we anticipate market share gains will accelerate across the Mobile, Fixed and Corporate divisions. While the ACCC's concerns about the proposed merger have caused uncertainty, we believe the issues are addressable and that, while delayed, the deal will not be blocked."
I'd agree with Yarra that TPG shares are cheap if the ACCC approves TPG's merger.
In fact I expect the stock will double (on an adjusted basis) in a couple of years if the merger goes ahead.
However, the problem is the merger's approval still looks only a 50:50 bet at best in my eyes.
As such I'd only suggest TPG shares for investors who have an evangelical like belief that the merger will be approved.
