TPG Telecom (TPM) has leapt to a fresh record high after beating full-year guidance yesterday even as two major brokerage firms downgrade the stock on valuation concerns.
The telco advanced a further 6.2% in morning trade to $4.49 on top of a 14% leap yesterday – the biggest two-day rise in four years – as investors welcomed a result that was way ahead of expectations.
While TPG has been a terrific ride for shareholders, with those who have owned the stock for the past year more than doubling their returns on price appreciation alone, brokers are beginning to raise alarms over the share price's premium.
Macquarie and Credit Suisse have downgraded the stock to "neutral" from "buy", despite Macquarie lifting its target price to $4 from $2.70 and Credit Suisse increasing its target price to $4.50 from $3.20.
Both brokers were intrigued by TPG's foray into the pipe fibre network by delivering the technology to around 500,000 apartments in major cities, but couldn't justify the share price rally.
TPG's price-earnings ratio is now at 22.5 times, much higher than the wider telco sector's 16 times, while its share price is more than 10% above the average broker price target of $4.06.