TPG Telecom’s share price could continue to fall after selling its fibre network infrastructure assets last month for $5.25bn, given offshore peers are instead holding on to fibre.
In the United States, mobile phone service providers were investing in fibre assets, which is the opposite of what has been the approach to TPG. Morgan Stanley analysts in a research note make the observation while discussing TPG’s announced asset sale on October 14 to the Macquarie Asset Management-backed Vocus Group.
“In our view, whilst the asset sale will de-lever TPG and allow a capital return … it will also say goodbye to some attractive structural growth assets (fibre),” the analysts said. “We think the new TPG (ex-fibre) left mostly a mobile business, the No.3 in the market, will likely be de-rated by investors.”
Shares in TPG Telecom have fallen about 11 per cent since the announced sale.
The analysts conclude that the sale appeared to be primarily motivated to reduce debt and set up a possible meaningful return of capital.
When TPG and Vodafone Australia first merged their fixed line and mobile businesses in 2020, there was considerable optimism about upside to revenue and earnings from a combined mobile and fibre business.
“But for various reasons, it does not appear to have fully eventuated and more recently TPG’s focus has shifted to asset sales,” the analysts said.
Earlier it sold off its mobile towers.
The analysts believe the share price decline reflects uncertainty about where the new TPG shares will trade.
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