Can TPG successfully stave off pending NBN ‘profit crunch’?

Can TPG successfully stave off pending NBN ‘profit crunch’?

With the market having already priced in some significant synergy benefits resulting from recent acquisitions, there’s growing concern that the share price growth experienced by TPG Telecom (ASX: TPM) – up 26% in the past 12 months, compared with a 13.5% fall in the S&P/ASX 200 index – may have finally reached the point where those expecting similar rates of momentum going forward are setting themselves up for disappointment.

To help put into context the growth rate experienced by the telco giant – which began in the 1980s as a single store selling computer hardware in Sydney – the market cap has gone from $1 billion only five years ago, to just under $10 billion today, which puts the stock in some pretty rare company.

Admittedly, the stock’s recent performance has warranted the market’s attention, having delivered a net profit of $202.5 million for the six months ending January 31 – well above analyst expectations and 90% higher than the same period a year earlier.

The result included almost a full six months of Perth-based telco iiNet bought by TPG for $1.56 billion in 2015. The successful integration and financial performance of iiNet has arguably helped to improve profit margins.

With 1.842 million customers in total, TPG – now Australia's second-largest provider of fixed-line broadband behind Telstra and ahead of Singtel-Optus – has worked hard to boost its market share ahead of the National Broadband Network's (NBN’s) completion, which will slash profit margins as competition intensifies.

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