The TPG Telecom Ltd (ASX: TPM) share price has had something of a rough year. The shares of this ASX telco have been static for most of 2019 so far, bouncing around the $6–7 range and opening trading this morning at a price of $6.61. The share price is up 5% YTD but still down almost 30% from its 52-week high of $9.31.
This is especially demoralising for the shareholders of TPG, seeing as they have had to watch the shares of rival telco Telstra Corporation Ltd (ASX: TLS) rise almost 40% in 2019 so far. So are TPG shares a buy today? Let’s have a look at what’s going on at the company
An update on TPG
TPG has been a phenomenal success story of the ASX. Founded in 1986 by the enigmatic David Teoh as Total Peripherals Group, TPG has rapidly expanded over the last three decades to become Australia’s second-largest provider of fixed-broadband services (behind Telstra) through its TPG and iiNet brands. The company also currently holds around a 20% market share of NBN services.
TPG also provides mobile as well as fixed-line services and has been expanding into the Singapore mobile market, establishing itself as the ‘fourth provider’ of mobile services in the country after launching in 2016.
Like other telcos, the NBN has proved to have been a bearer of bad news for TPG. TPG shares were trading north of $12 in 2016 but with an expanding NBN network undermining many of TPG’s established infrastructure, the company was forced to write down earnings as well as the value of its assets and its share price has yet to recover from these previous highs.
What does the future hold for TPG?
TPG announced last year that it was planning a ‘merger of equals’ with Vodafone Hutchison Australia Pty Ltd in order to “provide scale and financial strength to compete more effectively with Telstra and Optus”. However, this move was blocked by the ACCC, with a legal challenge to this decision still pending. TPG has still not flagged what this decision will mean for the company going forward if it is upheld. Further, TPG’s plans to build a 5G network remain on ice following the earlier decision by the Government to ban the use of Chinese telco Huawei’s 5G equipment. TPG had planned on using Huawei to enter the 5G space and this now looks to be dead in the water, at least for the time being.
I think there is a lot of fog surrounding the future direction of TPG as a company right now. As such, I will not be looking to open a position until there is more certainty over the company’s future plans, as well as its strategy to ‘go it alone’ if the merger is definitely blocked.
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Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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.