TPG expanding with AAPT

TPG (TPM) has announced it will acquire AAPT from Telecom New Zealand for a cash payment of $450 million on a debt free, cash free basis – this is a key consideration to the deal. 

TPM is a cost advantage business with a price cut advantage it is seeing fantastic growth and excellent returns from its low cost model. The fiscal year 13 numbers showed EBITDA was a 0.7% beat on consensus at $283.1 million, and NPAT of $142.2 million; a 1.5% beat on consensus.

However it’s the network TPG has built that excites the market.  TPM added 40,000 broadband and 57,000 mobile network users in FY13 and have made it clear it is looking to expand its infrastructure holdings over the coming year and the AAPT acquisition is a perfect fit for this strategy.

The purchase is fully funded through from an existing debt facility of $550 million, taking the gearing ratio to 1.2, which is very competitive. On current revenue metrics, AAPT saw sales at $410 million EBITDA of $55 million with CAPEX at $35. Forward estimates suggest AAPT could see similar sales in in FY14 and EBITDA of 70 million with CAPEX at 40 million.

This looks to be very much 2014 accretive and should add to the NPAT line come the end of the year. With TPM looking for further opportunities in the market, do not be surprised to see further pickups.

The trade

This will see the share price popping on the day the synergies for the business are compelling. This will take the share price to a record high having slide back over the past three months.

I am long TPM on a medium to long term view; they are the perfect competitor to Telstra and are taking market share by the day. The AAPT news will only improve the business long term and can see TPM well over $5 in the next few months. I would be watching for more announcements similar to todays to really push it higher. 

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