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Thursday, 7 December 2017
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Telecom Sentiment Change

TPG Telecom (TPM) - We bought the stock as a trade Tuesday. They have had their AGM Wednesday and are confident in the outlook and are “facing the challenges of the NBN”. We bought it on a similar theme driving the Telstra share price at the moment, that after the poor performance of the NBN hybrid coaxial fibre network, and the freeze on new connections for 6 to 9 months, the boot will be on the other foot for resellers. The NBN has an image problem, 5G is a few years away but coming, and they need the resellers to work for them rather than the NBN gouging them in order to recover their endless capital expenditure. It is this change in relationship that offers upside in TLS, VOC and TLS all of which have already begun to turn. The recent TLS earnings guidance looked like a profit warning last week but was well-received by brokers with Macquarie in particular upgrading to OUTPERFORM, with Morgans and Deutsche Bank also putting on buy recommendations with target price is 12% and 14% above the current share price. You could buy Telstra for a recovery, we chose to buy TPM.

Telstra for income - Am thinking about adding TLS back into the Marcus Today INCOME portfolio. If the market tips over it will almost certainly outperform. They have de-risked themselves with recent guidance. The stock box is below. On the new 22c dividend it is yielding 9.0%. Don’t expect any growth. It is trading in 18.5% discount to intrinsic value and an 8.4% discount to the average broker target price. It is 34% down from the year high. Brokers have been upgrading not downgrading. Some target prices are a dollar ahead of the current share price. Might be time to stop hating and start taking advantage of the fearful.

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