How long have you held the stock?
Since February 2017.
What do you like about it?
Long-term growth in demand for mobile and data services. The government is helping with the transition away from voice and fixed line broadband with payments from the NBN. The valuation is attractive with the market pricing in a cut in the dividend, which would still leave the company on a solid yield.
How is it better than its competitors?
Has a strong market share in the mobile space with a premium offering. The company continues to reinvest in its network to deliver a performance advantage over competitors, which helps it to maintain a greater share of the higher value corporate market and maintain a price premium. The strong brand and diverse network infrastructure enables the ability to cross sell and bundle products.
What do you like about its management?
Has delivered value for shareholders over the longer term in negotiating a good deal with the NBN over disconnection payments and has crystallised value from investments in the new media space. Continues to focus capex on the higher returning divisions and maintain strong brand leadership.
What is your target price on TLS?
$4.90, although much of the return is through the yield.
At what point would you sell it?
If irrational competition in the mobile market builds, particularly following the entry of TPG, and damages margins and profitability, then the company’s ability to maintain its dividend would be brought into question.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has subtracted 0.4% from portfolio performance relative to the market.
Where do you see the value?
The market has sold the stock off as competition in the mobile market has normalised as Optus and Vodafone have reinvested back in their networks after falling behind, and was spooked by the upcoming entry by TPG. We see the market structure as being broadly stable with underlying growth, even if TPG enter with a sub-scale network. There is apparent value in the stock and whilst they are losing profits from their fixed network, payments from the NBN will allow them to buy back shares and reduce pressure on the dividend.
Source: ASX
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