After releasing its half-year results, TPG Telecom Ltd [ASX:TPM] reported its profits had dropped 76.3% on account of collateral to its abandoned mobile network.
However, this was offset by a moderate rise in earnings, as well as underlying profit which was largely helped by TPG’s merger with Vodafone Hutchison Australia.
TPG share price is trading at $7.24, at the time of writing, up a further 1.26% on top of yesterday’s 4.39% gains.
The company also announced its dividend distribution, which was in line with the year prior. This will pay an interim fully franked dividend of two cents per share.
Related: Matt Hibbard shows you his top five dividend picks for 2019. Click here to claim your free copy today.
TPG share price blamed on 5G Huawei scrap
The half-year results for the internet service provider gave a stark insight to shareholders, as net profit over the last six months ending 31 January plummeted to $47.4 million from $199.8 million in the same period 12 months prior.
Revenue slumped to $1.236 billion, down 1.4% from its previous $1.255 billion in the year before, dragged down further by the NBN rollout.
TGP lost $227.4 million from its decision to ditch construction of its 4G mobile network in February. The company reported:
‘The gross profit decline is driven by broadband gross margin erosion and loss of home phone voice revenue, both due to the NBN rollout.’
TPG also expressed concern over the change in NBN pricing, which is forcing the price of its cheapest 12 megabit-per-second plan. This means the $6.6 billion company may have to get rid of its $60 NBN plan. Chief operating officer Craig Levy stated:
‘We believe that there is a sector of the market that is very price sensitive and it would be a great shame if TPG, which has always supported this part of the market, was to stop selling at this price point.’
TPG’s 2019 outlook
Shareholders are still waiting for the Australian competition and Consumer Commission to reach a conclusion regarding TPG’s merger with Vodafone.
The outcome is expected to be announced by mid-April. As expected, investors will have to wait for the outcome of that to see its impact to share price
In saying that, the fact that the massive impairments from the abandoned mobile network are only a once off is something shareholders can hang on to.
Unfortunately, the second half of the financial year looks like it will be harsher for TPG on account of the NBN price push, and is therefore likely to drag shares lower.
For Money Morning
PS: Free report: Aussie stock picker Sam Volkering reveals what he believes are his next four big potential winners. Click here to download your free report now to find out.