Investors in the telco sector have had a painful twelve months, with Vocus, TPG and Telstra off by 73%, 49% and 22% in this time. In this week’s Buy Hold Sell thematic, we ask Roger Montgomery and Ben Clark for their view of the three stocks, and what we could expect for the sector from here.

 

“I think you need the dust to settle before you work out what the economics of these businesses is going to be. They’ve digested a lot of acquisitions, and I don’t expect they have integrated them properly.”

Key points: 

• Competition in NBN is fierce, with 110 providers. The big question is what are the margins going to be? Unclear at this stage. More questions than answers right now.
• I think you need the dust to settle before you work out what the economics of these businesses is going to be, they’ve digested a lot of acquisitions, I don’t expect they have integrated them properly.
• On Telstra: Despite positioning, there is no evidence of monopoly pricing power; no profit growth over 17 years. Customer base to be fragmented. Stock potentially has most to lose.
• On Vocus: Trading on around 7 times earnings, so is the bad news priced in already? Good money to be made when sectors are out of favour. Questions over leadership however.
• On TPG: Made a tough decision to move into mobile and bundle. Will take time to materialise value.