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Is the TPG share price a buy after the NBN price change?

Tristan Harrison
TPG Telecom

Is the TPG Telecom Ltd (ASX: TPM) share price a buy after the news this week of the NBN to give service providers more bandwidth and higher speeds at no extra cost.

Since the pre-open price on Wednesday morning, the TPG share price has grown by 6%. That’s a quick rise for a defensive utility company.

The NBN has been a big drain on profit for telcos like TPG and Telstra Corporation Ltd (ASX: TLS). TPG does have somewhat of an advantage compared to its competitors because it has lower costs, which means it can offer lower prices or have better profit margins compared to others.

We don’t yet know what the telcos will do with the improvement of bandwidth and pricing, but you’d imagine some of the windfall will stay with the telcos, so TPG is definitely going to be a beneficiary. People can’t go without internet, so the earnings are very defensive.

But the biggest thing that could boost the TPG share price over the next few months is a potential merger with Vodafone Australia which would create enormous synergies, it would also mean TPG gets access to Vodafone’s 5G mobile network.

I think 5G will steadily replace the NBN over the coming years as capacity and reliability improves – households may decide just to go for a wireless broadband option in their house.

But it really depends whether TPG’s appeal is successful or not because the ACCC initially stopped the merger going ahead.

Foolish takeaway

TPG is trading at 23x FY20’s estimated earnings. It’s certainly not cheap but if the decision goes TPG’s way it could get a big boost. But, I don’t think it’s the best opportunity on the ASX unless the merger goes ahead.

The post Is the TPG share price a buy after the NBN price change? appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019