The TPG Telecom Ltd (ASX: TPG) share price has fallen around 8% in the last month. Could it be an opportunity that's calling out to investors to consider?
TPG is one of the largest telecommunication businesses in Australia after the merger between the old TPG and Vodafone Australia. It now operates a number of brands including Vodafone, TPG, iiNet, Internode, Lebara, AAPT and Felix.
Since listing in July 2020, the business has seen its share price decline by more than a quarter.
What do analysts think of the TPG share price?
Some analysts are pretty confident on the TPG share price.
UBS currently rates TPG as a buy, with a price target of $7.60, suggesting that the shares could rise around 20% over the next 12 months if it's right.
The broker believes that earnings can grow in FY22 and that it could also do something with its towers.
Readers may remember that a few months ago, Telstra Corporation Ltd (ASX: TLS) announced it was selling a 49% stake of its towers business for $2.8 billion. Telstra's towers business is the largest mobile tower infrastructure provider in Australia with approximately 8,200 towers.
Telstra sold its towers stake to a consortium comprising the Future Fund, the Commonwealth Superannuation Corporation and Sunsuper.
Morgan Stanley also thinks that the TPG share price is a buy, with a price target of $9.50. That suggests a large increase of TPG shares – an upside of approximately 50%. The broker thinks that the merger between the businesses will help over the longer-term terms.
FY21 half-year result
The TPG financial year is the 12 months to December 2021, so the latest report that investors have seen is for the six months to 30 June 2021.
TPG said that it had made strong progress on the integration and strategic priorities and that it was ahead of its 2021 5G coverage target. It's aiming to reach 85% 5G population coverage in ten of Australia's largest cities and regions by the end of the year, supporting growth in mobile and home wireless.
The telco's total fixed broadband subscriber base increased to 2.2 million in the half-year. It launched 5G home wireless and tripled its 4G home wireless customer base.
TPG's merger synergy program is on track, with $38 million of cost synergies delivered in six months.
In terms of the financial numbers, its reported revenue was $2.63 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) generated was $886 million and net profit after tax (NPAT) came to $76 million.
Management did acknowledge that it is undertaking a strategic review of its tower assets. It operates a mobile network of 5,800 rooftops and towers and owns the passive infrastructure of around 1,200 of those sites – the majority of those are in metro areas and have a high average tenancy ratio.
TPG share price valuation
Morgan Stanley has the more optimistic estimate for earnings. TPG is valued at 34x FY21's estimated earnings and 27x FY22's estimated earnings.
UBS thinks that TPG is going to pay a grossed-up dividend yield of 4% in FY22, suggesting a growing dividend.
