TPG a better long-term bet than Telstra: Airlie

Matt Williams, of Airlie Funds Management, says he would support TPG Telecom on Telstra's David Teoh's when he had to pick a winner in an increasingly competitive telecommunications sector.

"Telstra has the badets, the infrastructure and complexity inherited from the complexity. [is] simple, well-managed with this mindset of family manager-owner, "Williams said in a presentation to investors in Sydney on Wednesday, pointing out that he did not own any stock at the present time.

The Airlie Industrial Fund "gravitated" to listed companies that were still largely controlled by the founders or their owners, says Williams.

These include the Reece plumbing company and the Nick furniture retailer Scali: The fact that TPG is largely controlled by Rich Lister David Teoh, who owns 34.4% of the company, was one of the reasons he thought the company would add value to shareholders in the long run

But he said that TPG was not without challenges since it has to spend a lot to compete with incumbents in the mobile phone industry.

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"There is a lot of uncertainty because it [Mr Teoh] has to buy 5G spectrum, it has a lot of capital expenditure and this balance sheet has no optionality, "Williams said.

"We're not here yet and it's not in the fund, but if on a five-year perspective, it's a stock that I think will win."

Telstra shares, largely owned by individual investors, 23 percent this year and 33 percent over 12 months.

TPG had returned investors five times their money between early 2013 and mid-2016 before a 60 percent drop in the stock price. The stock has stagnated in the last 12 months, but is down 15% in the calendar year 2018.

Trade off

Airlie Funds Management was founded by John Sevior, former manager Perpetual shares. It was acquired in February by Magellan, the ASX-listed fund manager, and recently launched a retail fund led by Mr. Williams, who succeeded Mr. Sevior at Perpetual, and the Former Fidelity badyst Emma Goodsell.

Ms. Goodsell stated that the fund had avoided Telstra because he was spending more than he was earning. For every $ 100 of cash receipts, she spent $ 68 on capital expenditures and $ 52 on dividends.

Telstra recently chose to reduce its dividend rather than its capital expenditures to maintain the strength of its network and charge customers a higher price than its competitors, Goodsell said.

According to Airlie's forecast, Telstra's net debt on earnings is expected to reach 2 times during the 2019 fiscal year, in violation of the prescribed debt targets.

Ms. Goodsell also stated that the fund had examined other markets. new mobile competitor – France and India. In these markets, the average revenue per subscriber (ARPU) decreased by 25 to 40%. This suggested that a mobile price war, triggered by the arrival of TPG, would reduce Telstra's profits by $ 1.4 billion, or 16%.

She also stated that the valuation of Telstra seemed cheap because of the contribution of one-time NBN payments to its profits. If the company was evaluated on the basis of what it described as lasting profits, at 5.3 times the value of the company, it was fair value compared to its global competitors.

"The compromise we will not do, it's an inexpensive badessment with a poor or deteriorating track record: it's there that you're snapped up by a value trap."

She did not believe that Telstra was a valuable trap. "But when you have a capital-intensive business model, a rapid technological change, you do not know what you're going to do about the capital expenditures you have to spend.