The telco sector caused widespread pain in 2017 when it lost 23% to finish as the worst performing sector on the ASX. And not even 4 months into 2018, the sector is already down another 14%. You may well be asking: When will this end? In this special thematic episode of Buy Hold Sell, we asked Prasad Patkar from Platypus and David Wilson from CFSGAM for their views on what the current drivers are, what it would take to see a turnaround, and which telco they would nominate if they had to pick one. Tune in to hear about the inevitability of a restructure of NBN Co, the potential for M&A in the sector, and at what valuation Telstra would become a good opportunity.

Key points:

  • After an easy run due to a ‘cosy oligopoly’, competition and capital intensity continue to increase significantly across the sector. Now TPG is preparing for a launch in 2020, while Optus looks increasingly aggressive. Incumbents are being squeezed from all sides with no respite in sight.
  • Potential catalysts that could signal it is time to come back in would need to be significant, E.g.: Telstra slashing capex, Vocus refocusing and rationalising assets, or a TPG/Vodaphone merger. Also, a fundamental restructure of NBN Co while unlikely in the short-term, but may be inevitable in the long term.
  • While there may be nothing in the sector for growth investors, TLS between $2.50 - $3.00 could offer a good opportunity for an income investor looking for sustainable yield, and TPG could be a good long-term holding for the value investor. 

Watch next

Watch our panelist discussing 3 stocks making headlines and 2 'under the radar' in the most recent episode of Buy Hold Sell: 

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Albert William

Thank you James for precise & relevant questions in this presentation. Excellent & meaningful answers. No waffling around. Cheers.