Fund manager Wilson Asset Management (WAM) has selected the S&P/ASX 200 Index (ASX: XJO) share TPG Telecom Ltd (ASX: TPG) as a stock that could deliver returns.
WAM aims to find undervalued ASX shares with a catalyst that potentially could lead to the share price rising.
ASX-listed telecommunication share TPG Telecom has become a much larger company over the years; it now has brands including Vodafone, TPG, iiNet, AAPT, Internode, Lebara and Felix Mobile. It has Australian-wide mobile and fixed-line networks.
Recent positives for the ASX 200 share
A number of things have been going right for the telecommunications company.
Last month, TPG Telecom announced that it had received an indicative, highly conditional, non-binding offer from Vocus Group to acquire particular enterprise, government and wholesale assets and associated fixed infrastructure assets for approximately $6.3 billion.
The company recently announced it had extended its due diligence period with Vocus until 4 October 2023. TPG noted that discussions between the parties were "ongoing and incomplete", adding that the TPG Telecom board had not reached a decision to accept any offer, and there was no certainty a transaction would eventuate.
WAM noted that the ASX 200 stock also recently reported a number of pleasing numbers in the half-year result for the six months to 30 June 2023. It said there was a 4.5% increase in its services revenue to $2.3 billion and a 12.4% rise in its earnings before interest, tax, depreciation and amortisation (EBITDA) to $941 million.
TPG reported a net increase in its mobile subscribers of 39,000 for the first six months. This was helped by the reopening of international borders, ending the period with 5.32 million mobile customers. Average revenue per user (ARPU) for the mobile division increased 2.8% to $33 per month, driven by a 6.2% increase in postpaid ARPU to $44.6 million.
The number of TPG Telecom's fixed wireless services continues to grow, with the addition of 38,000 new subscribers, taking the total customer base to 209,000.
Why is WAM excited by TPG Telecom shares?
The fund manager also noted that the ASX 200 stock increased its FY23 EBITDA guidance to between $1.925 billion to $1.95 billion, up from its previous guidance of $1.85 billion to $1.95 billion. The company's transformation costs have come down from the original guidance of $50 million to $35 million to $40 million.
WAM explained its bullish outlook on the company, saying:
The upgraded FY23 EBITDA guidance was pleasing and we look forward to receiving further updates around the proposed transaction in the coming months which may provide a further catalyst for a share price re-rating.
