TPG stuns the analysts again

The telco world may be dominated by giants. But TPG's low cost model is proving a winner for consumers and investors.

It may be way overvalued on some estimates, but TPG (TPM) continues to deliver the goods.

The upstart telco this morning produced a result that was way ahead of expectations and which only fuelled the recent buying frenzy. The stock surged to a peak of $3.94 this morning, putting the value of the company in excess of a dizzy 20 times earnings.

The 64% lift in net earnings to $90.96 million was exaggerated by a one-off tax payment in the previous year. Even so, on a normalised basis, the result was a 31% lift on the previous year, which is nothing to be sneezed at.

The consensus forecasts were for full year earnings per share of 17.7c. Instead, TPG delivered 18.8c, well above its own guidance.

That followed a good first half performance where it enjoyed solid growth in broadband and mobile customers and which again easily beat analyst expectations.

Most analysts though are concerned about whether the growth can be sustained as the NBN is rolled out with opinion sharply divided over whether it will improve or squeeze retail margins.

The company attributed its growth to investment in its fibre network and the improved margins that have followed.

It also recently picked up wireless broadband spectrum for a modest price, paving the way for it to introduce its low cost model to that arena.That, however, could require serious capital investment.

While Telstra (TLS) continues to dominate the market, piling on new mobile customers (see Alan Kohler's weekend briefing), TPG consistently has proven that a small and nimble player with one eye on performance and the other on cost can take the fight to the big operators.

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