Week Ahead | TPG Telecom over Telstra

11 December 2017

Global markets were higher on Friday in the wake of the latest upbeat US jobs report. 

Payrolls data on Friday bolstered optimism about the US economic outlook as its showed a 228,000 hiring spree last month, cementing the likelihood of an interest rate hike this week. However, in the November US jobs report, wages once again remain low and despite an extended hiring boom in the US, the pressure on employers to pay their workers more has failed to materialise.

For the week ahead, all eyes will be on the US Federal Reserve meeting later this week. As we touched on last week, assuming a hike the Fed rate will now be at the same level as the RBA cash rate, the first time this has happened in 17 years. Outlook comments for 2018 will be watched closely, particularly around continued low inflation and the potential impact of stimulus from the Republican tax-cut plan. 

Stock in Focus: TPG Telecom (TPM:AX)

The Aussie Telco space remains extremely competitive, driven in part by TPG’s ambitious expansion plans which has been reflected in sector share prices. While we are cautious on Telstra (given we believe it will continue to struggle to defend its market share as the incumbent), we prefer TPG as the disruptor.  

 

TPG shares moved higher last week after the telecom reiterated 2018 financial guidance given in September, although shareholders gave the telecommunications provider its first strike over executive pay.

At its AGM, Chief executive David Tech told investors he was confident the group had a great future despite the shellacking it has received on the back of the NBN Company debacle and associated margin crunch. TPG stated it was “tracking well” to full year guidance for EBITDA between $815 million to $820 million, including capital expenditures of $270 million associated with the build out of its twin mobile networks – in Australia and Singapore.

While such an aggressive expansion strategy comes with execution risks, TPG is clearly the disruptor in the industry as it plans to build and launch its own mobile networks.

We currently have a HOLD rating on TPG.

Members should look out for a full update on TPG to be released in this week’s weekly report.

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Australia & New Zealand Market Movers

The Australian share market ended in positive territory on Friday (ASX 200 index +0.28%) with utility companies putting a bit of a spark into the benchmark at the end of a lacklustre week. The ASX floundered over the week, adding just four points, as two days of gains at the end of the week offset losses in the early part.

 

The New Zealand market rallied on Friday (NZX 50 index +0.8%) in continued light trading, led higher by Xero and NZX. A clear turnaround in sentiment has taken place over the fate of the New Zealand dollar, with respondents to an ASB Bank survey now expecting to see still more weakness in an already soft currency. The bank's Kiwi Dollar Barometer, which tracks exporters' and importers' exposures to foreign exchange risk, through surveying 432 businesses with annual foreign exchange turnover of at least $1 million, said expectations were for a big shift lower.

 

3 Things Markets Will be Watching this Week

1.                 The US Federal Reserve makes an interest rate decision on Thursday morning AU/NZ time.

2.                 The European Central Bank also makes a post meeting announcement on Friday.

3.                 Australian employment figures are released Thursday.

 

 

Have a Great Day,

Team

Global markets were higher on Friday in the wake of the latest upbeat US jobs report.  Payrolls data on Friday bolstered optimism about the US economic outlook as its showed a 228,000 hiring spree last month, cementing the likelihood of an interest rate

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