TPG Telecom beats estimates as iiNet valuation boosts profit

TPG shares have dived despite the telco posting a big jump in earnings as lacklustre guidance worries investors.

A TPG billboard at Wynyard Station.

TPG Telecom has booked a 69 per cent jump in earnings for the full year, thanks in part to the inclusion of iiNet into its operations.

However, lacklustre guidance has resulted in a vicious sell-off in early trade, with TPG shares off 16 per cent at $9.92 at 10.30am (AEST).

The activity wipes out TPG’s gains for the year-to-date, with its current price its lowest since February.

The main factor weighing on TPG’s guidance is the continued rollout of the National Broadband Network.

“Our underlying EBITDA guidance for FY17 is affected by the acceleration of the NBN rollout which will create margin headwinds for the group and it also reflects the increasingly competitive market place and a level of uncertainty of outlook with regards to the CVC charges,” the telco said.

“During this period of transition to the NBN it’s the right strategy for the group to continue to compete aggressively and as a result the guidance has seen some reduction in margin but we see that as an investment in the long term good of the business.”

For the year to July 31, the telecommunications giant (TPM) said net profit after tax surged to $379.6 million, which included a $73.1m lift in the valuation of its previously held stake in iiNet prior to the takeover.

The company’s underlying earnings jumped 46 per cent to $361m, outstripping analyst estimates for a reading of $346.1m.

TPG also logged adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $775.3m, which marginally topped its guidance for $770m to $775m but fell short of analyst predictions for a reading of $780.7m.

The solid results came on the back of an 88 per cent rise in revenue to $2.39bn.

TPG also delivered guidance for underlying EBITDA of $820m-$830m in fiscal 2017, as much as 7.1 per cent above fiscal 2016 but well below expectations for guidance of $884.5m.

The group provided a final dividend of 7.5c a share, bringing total dividends to 14.5c. The full year dividends are 26 per cent above the prior period.