TPG Telecom has beaten its earnings guidance and lifted full-year profit by nine per cent, but warned it faces mounting costs in the year ahead as customers migrate to the national broadband network.
Profit for the 12 months to July 31 rose to $413.8 million on a four per cent revenue lift following the full integration of the iiNet business that TPG acquired in 2015.
Underlying earnings rose eight per cent to $835 million - surpassing the $820 million to $830 million guidance range issued in April - but TPG still cut its dividend from 7.5 cents to a fully franked two cents.
TPG executive chairman David Teoh on Tuesday said shareholders would benefit in the long term from what he called a "fiscally prudent" decision to put its cash into the new mobile phone network it announced in April.
"The board has concluded that it is in the best interests of shareholders that a greater proportion of profits be retained in the company to be deployed in the mobile rollouts," Mr Teoh said on Tuesday.
"The board is confident that this course will prove in the long run to be the right decision for shareholders."
The reduced dividend takes TPG's total payout for the year to 10.0 cents, compared to the previous year's 14.5 cents.
The telco said its mobile network will be up and running in parts of Sydney, Melbourne and Canberra ahead of schedule by the middle of next year.
Chief financial officer Stephen Banfield forecast earnings to fall to between $800 million and $815 million in 2017/18, with roughly 400,000 to 500,000 fixed line subscribers expected to shift to the NBN.
That will incur higher connection fees for service providers.
Mr Banfield said the telco remains "comfortable" with its initial capex guidance of $600 million over the next two to three years for the mobile network but didn't say when the project was expected to break even.
Nonetheless, investors seemed impressed, driving TPG shares up by more than six per cent to $5.555 at 1528 AEST.
Citi analyst David Kaynes said the midpoint of the weaker-than-expected outlook was four per cent below current consensus of $843 million.
"This result highlights the broader challenges facing the Australian telecom industry with guidance for EBITDA declines in FY18 reflecting the margin compression due to the migration of consumer broadband services to NBN," Mr Kaynes said.
He values TPG at $6.70 per share.
TPG LIFTS FY PROFIT, CUTS DIVIDEND:
* Net profit up 9.0pct to $413.8m
* Revenue up up 4.3pct to $2.491b
* Final dividend down 5.5 cents to 2.0 cents, fully franked
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