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Equity Bottom-Up

We have cut our fair value estimate for narrow moat TPG Telecom by 15% to AUD 8.50 per share. Management's reiteration of AUD 820 to 830 million underlying EBITDA for fiscal 2017 is not a surprise (our earnings estimates for the next three years are largely unchanged). However, we have factored in the potential greater longer-term impact from national broadband network, or NBN. All else being equal, the higher NBN access costs (around AUD 40 per month per subscriber) could reduce TPG's EBITDA base by up to 25% when the NBN is largely rolled out by the end of fiscal 2020. This disproportionate impact arises because 68% of the group's broadband subscribers are on its own infrastructure (where TPG pays access cost of AUD 13 to 18 per month per subscriber)—an advantage that will be gradually eroded by the NBN.Analyst: Brian Han

We have cut our fair value estimate for narrow moat TPG Telecom by 15% to AUD 8.50 per share. Management's reiteration of AUD 820 to 830 million underlying EBITDA for fiscal 2017 is not a surprise (our earnings estimates for the next three years are largely unchanged). However, we have factored in the potential greater longer-term impact from national broadband network, or NBN. All else being equal, the higher NBN access costs (around AUD 40 per month per subscriber) could reduce TPG's EBITDA base by up to 25% when the NBN is largely rolled out by the end of fiscal 2020. This disproportionate impact arises because 68% of the group's broadband subscribers are on its own infrastructure (where TPG pays access cost of AUD 13 to 18 per month per subscriber)—an advantage that will be gradually eroded by the NBN.Analyst: Brian Han

Reality Bites as TPG Telecom's Fair Value Estimate Cut to AUD 8.50 Per Share