After looking at TPG Telecom Limited’s (ASX:TPM) latest earnings announcement (31 January 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long term investor, I pay close attention to earnings trend, rather than the figures published at one point in time. I also compare against an industry benchmark to check whether TPG Telecom’s performance has been impacted by industry movements. In this article I briefly touch on my key findings.
How Did TPM’s Recent Performance Stack Up Against Its Past?TPM’s trailing twelve-month earnings (from 31 January 2018) of AU$388.50m has declined by -3.14% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 26.12%, indicating the rate at which TPM is growing has slowed down. Why is this? Well, let’s take a look at what’s occurring with margins and whether the rest of the industry is facing the same headwind.
Revenue growth in the past few years, has been positive, however, earnings growth has fallen behind meaning TPG Telecom has been increasing its expenses by a lot more. This harms margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the Australian telecom industry has been enduring some headwinds over the previous year, leading to an average earnings drop of -3.14%. This is a major change, given that the industry has constantly been delivering a a notable growth of 13.84% in the past five years. This growth is a median of profitable companies of 6 Telecom companies in AU including Chorus, Telstra and SpeedCast International.In terms of returns from investment, TPG Telecom has fallen short of achieving a 20% return on equity (ROE), recording 15.05% instead. However, its return on assets (ROA) of 7.78% exceeds the AU Telecom industry of 6.82%, indicating TPG Telecom has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for TPG Telecom’s debt level, has declined over the past 3 years from 20.88% to 12.54%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 13.77% to 56.13% over the past 5 years.
What does this mean?
Though TPG Telecom’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors influencing its business. You should continue to research TPG Telecom to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TPM’s future growth? Take a look at our free research report of analyst consensus for TPM’s outlook.
- Financial Health: Are TPM’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 January 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.