The TPG Telecom Ltd (ASX: TPM) share price is surging ahead in late afternoon trade and is likely to be among the best performing stock on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index today.
It's never easy to pin-point one reason to explain the movement in a stock on any given day but there are two likely reasons for the oversized move in the TPM share price, which is up 6.3% to $6.83 at the time of writing.
This puts the stock at the top of the ASX 200 leader board with the Adelaide Brighton Ltd. (ASX: ABC) share price taking second spot on its 5.4% rally and the Cimic Group Ltd (ASX: CIM) share price in third place with its 4.6% gain.
Fighting to merge
The run up in the TPG share price comes as the company's elusive founder and chairman David Teoh fronts court as he challenges the ACCC's ban on the merger between his company and Vodafone Hutchinson Australia.
Investors could be positioning themselves in the stock for a positive outcome given that the ACCC's rational for blocking the marriage appears pretty circumstantial, in my view.
Also, the ACCC doesn't have a particularly successful track record in blocking bids that are challenged in the courts, so it's conceivable that investors are willing to roll the dice and take a punt as confirmation of the merger will trigger a very positive share price reaction.
Good upside, limited downside
The downside also appears to be reasonably well contained following its FY19 profit results (click here to find out more), especially after UBS upgraded the stock to "neutral" from "sell".
The broker believes the underperforming stock had fallen far enough and it described the group's latest results as "solid" with last year's earnings and its FY20 outlook inline with the broker's expectations.
While TPG is warning of more pain from the migration of customers on higher margin ADSL broadband plans to the make-no-profit NBN bundles, UBS points to three things that could partially offset the loss.
These are growth in TPG's corporate business (driven largely by services it provides to Vodafone), cost cutting and continued growth the take up of its fibre offering.
"The Federal Court hearing is scheduled to begin on 10-Sep and complete within three weeks. However, we see the potential for appeals to prolong the process further – TPM noted this could add months more to the timeline," said UBS.
"We think TPG's current share price could be factoring a ~25% probability of deal success."
The broker increased its price target on the stock to $6.60 from $5.80 a share.
