5G unlikely to boost returns for telcos
5G may be coming to Australia but it is yet to prove a boost to telecom companies as both Australia’s major listed telcos have reported negative performance since the start of the year.
Telstra ran Australia’s largest 5G network, currently covering 41% of the population, and was expected to expand this to 75% of the population by the end of June 2021. In its annual report, Telstra said it was spending $500 million on its 5G roll-out. Meanwhile, TPG Telecom merged with Vodafone Australia in June and was planning to have 5G available to more than 85% of the population in six cities by the end of 2021.
However, both of the companies had reported negative performance since the start of the year with Telstra down 20%. TPG Telecom only had available data since 30 June following its merger with Vodafone Australia but had fallen 15% since then compared to losses by the ASX of 9%.
Share price performance of Telstra versus ASX 200 since start of the year to 30 October 2020
In its half-year report to 30 June, TPG said it had been negatively impacted by a variety of COVID-related issues such as the closure of retail stores, call centres, reduced new connections from travellers and the introduction of financial hardship plans.
Dale Gillham, chief analyst at Wealth Within, said: “By all accounts 5G is a game changer, as it will allow many more applications, services and products to enter our daily lives from providing high speed camera surveillance in our streets to keep us safe, to doctors being able to view data, run tests and even operate remotely. For investors, 5G will bring with it a new generation of products and companies that could prove to be very profitable.
“I don’t believe telco’s will be the companies that benefit the most from 5G, instead it will be smaller companies with entrepreneurial minds in the areas of education, financial management and health.”
There were more than 75 funds in the Australian Core Strategies universe which held Telstra, one of Australia’s largest companies, but only three which held TPG Telecom. The largest weighting to Telstra was held by Pengana Australian Equities and MLC Wholesale IncomeBuilder which both held more than 7%.
Perpetual Pure Equity Alpha was the only fund to hold both of the stocks in its top 10 weighting with 3.8% in Telstra and 3.4% in TPG Telecom. Over one year to 30 September, 2020, the fund returned 4.3% versus average returns by the absolute return sector of 0.22%, according to FE Analytics.
However, in the short-term, Perpetual said TPG had detracted from absolute performance as a result of its merger with Vodafone earlier this year.
“The long position in telecommunication services provider TPG Telecom (-18.0%) detracted from absolute performance. The stock handed back earlier gains during the quarter following the completion of its merger with Vodafone, which saw the spinoff of TPG’s Singapore operations into a new company (called Tuas Ltd),” it said.
“Despite its recent sell-off, we believe the synergies from the merger will be value accretive and are yet to be fully realised by the market.”
Performance of Perpetual Pure Equity Alpha versus absolute return sector over one year to 30 September 2020
AUTHOR
Laura Dew
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