Is the TPG (ASX:TPG) share price a buy today?

Is the TPG Telecom Ltd (ASX: TPG) share price a buy today? Here's a look at TPG compared to rival Telstra Corporation Ltd (ASX: TLS).

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The TPG Telecom Ltd (ASX: TPG) share price has gone off the ASX radar in the past few months, it seems. Backtrack to late June, and the imminent TPG/Vodafone merger was the talk of the ASX town. The old TPM-tickered TPG was about to join forces with Vodafone to form a newly merged telco. Investors were excited to see the fixed-line strength of TPG combined with the mobile reach of Vodafone's customer base. The spin-off of the old TPG's Singapore operations into Tuas Ltd (ASX: TUA) was also an exciting sidenote. In the 2 months leading up to the merger, TPM shares rose by more than 25%.

But since the merger came into effect, TPG shares have fallen off the radar. The TPG share price is down around 15% since 30 June, and the Tuas share price has offloaded more than 22%.

So what's going on? Is this a case of buyers' remorse?

wondering about asx share price represented by man surrounded by question marks

Image source: Getty Images

What does the TPG share price tell us?

It's hard to value TPG using traditional metrics like the price-to-earnings (P/E) ratio given the 'new TPG' has only been around for a few months now.

But let's look at some numbers anyway. On current prices, TPG is being valued at a market capitalisation of $14.1 billion.

In its half-year earnings report which TPG released to the market recently, the company told us that if the Vodafone merger had occurred on 1 January, revenues would have come in at $2.71 billion for the 6 months ending 30 June 2020, with earnings at $918 million. If we annualise TPG's earnings (which is a little bit shonky, I know), TPG comes in with a P/E ratio of 19.74. By comparison, rival Telstra Corporation Ltd (ASX: TLS) is currently being priced at a market capitalisation of $33.84 billion with full-year revenues of $23.71 billion and earnings of $8.9 billion, which gives Telstra a P/E ratio of 18.57.

That tells us that the market is more or less pricing these 2 companies at a similar level compared to their underlying earnings.

TPG or Telstra?

So why would an investor go for TPG over Telstra shares, for example? More growth? I happen to think Telstra's mobile network (the only division making telcos any money these days) is far superior to the new TPG's one and is likely to attract more customers when 5G technology comes into the mainstream.

More income? Although TPG shareholders were treated to a whopping special dividend of 51.6 cents per share on the completion of the merger, this was largely funded by debt. It is unclear what kinds of dividends the company will be paying going forward. It has got a high benchmark though — on current prices, Telstra's reaffirmed 16 cents per share gives the company a trailing yield of 5.65% today.

Foolish takeaway

Whilst I think TPG is a great business, I would prefer to invest in Telstra myself if I wanted exposure to an ASX telecom company. There are a few things that aren't really clear just yet for TPG, including a full-year set of numbers to analyse and any kind of dividend guidance. As such, I would go with the devil you know and stick with Telstra if you want in with this space.

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.

More on Technology Shares

Smiling couple looking at a phone at a bargain opportunity.
Technology Shares

3 bargain ASX tech shares I'd buy right now

Tech shares have sold off, but that could be creating opportunities.

Read more »

defence personnel operating and discussing defence technology
Technology Shares

Why EOS shares are tumbling 11% today as investors weigh a key defence catalyst

EOS shares fall 11% as investors await a key contract update.

Read more »

Buy and sell written on a white cube.
Technology Shares

Why this top fundie is tipping Life360 shares for outsized gains

A leading fund manager believes Life360’s beaten-down shares could be set for a large rebound.

Read more »

Robot humanoid using artificial intelligence on a laptop.
Technology Shares

Xero shares push higher on deal with AI giant Anthropic

This tech stock is avoiding the market selloff on Friday.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Technology Shares

Why are Weebit Nano shares crashing 15% today?

Let's see why this tech stock is sinking on Friday.

Read more »

A woman scratches her head, thinking is this a no-brainer?
Technology Shares

Down 65%: Are Pro Medicus shares in the buy zone yet?

Pro Medicus has had one of its toughest periods yet...

Read more »

Red arrow going down, symbolising a falling share price.
Technology Shares

Why is this battered ASX tech stock losing big today?

Analysts remain bullish and see 110% upside for the growth share.

Read more »

A dollar sign embedded in ice, indicating a share price freeze or trading halt
Technology Shares

This ASX tech stock is frozen today. Here's what's going on

ASX tech stock enters halt as a capital raising looms.

Read more »