Weekly Reports | 10:00 AM
This week's In Brief delivers a couple of laggards looking ripe for a re-rating and a company with exposure to the nuclear megatrend.
-Jarden sees TPG Telecom as undervalued relative to peers
-Webjet Travel Group defies Middle East travel headwinds with strong 1H26 TTV growth
-Silex Systems gains momentum as laser enrichment nears milestone
By Danielle Ecuyer
This week’s quote comes from
Jack McIntyre, Portfolio Manager at Brandywine Global, part of Franklin Templeton:
“In addition to the political jabs aimed at them, the Fed is in a tough spot. They expect stagflation, or higher inflation and a weaker labor market. That is not a great environment for financial assets......
"One could call the Fed’s move a risk management-style rate cut. It shows the Fed is putting more emphasis on the softening in the labor market as they trimmed rates while forecasting more cuts in 2025. It makes sense that more rate cuts are expected as monetary policy works with a lag and labor market statistics are a lagging economic indicator.
The weakening labor market will have a deleterious impact on inflation, so the Fed is willing to wait out sticky inflation. There was a significant dispersion in policy views by this Fed for 2026, which probably means more volatility in financial markets next year.
"Now, we are all back to data dependency, starting with tomorrow’s initial jobless claims.”
TPG just got too cheap
A quick scan over the telco stocks, and TPG Telecom ((TPG)) has underperformed noticeably compared to its locally listed peers Telstra Group ((TLS)), Aussie Broadband ((ABB)) and Superloop ((SLC)).
For Jarden, the relative under-performance is considered excessive with the stock now trading around a 6.5% FY26 free cash flow yield, ex-special dividend, and 8.8% for FY27.
The corporate restructuring which realised $4.7bn of net proceeds from the sale of its Enterprise, Government & Wholesale (EG&W) assets achieved two positive outcomes, the de-leveraging of the balance sheet and improved free float.
As a quick refresher, the telco is returning $3bn to shareholders through $1.61 per share in a capital reduction/cash distribution, and $688m is intended for minority shareholders to reinvest in the capital reduction proceeds. The reinvestment plan is designed to improve TPG’s free-float liquidity (free float flagged to rise to 30% from 23%) and maintain ASX200 index inclusion.
Total debt repayment of up to $2.4bn is assumed with a full reinvestment plan uptake, which would lower bank borrowings by around $1.7bn.
Jarden has upgraded the stock to Overweight from Neutral with a revised target price of $5.25 from $5.30. The analyst assumes a 100% take-up of the reinvestment plan which will result in around 224m new shares being issued, which is factored into the broker’s EPS estimates.
The cash distribution is expected to occur in late October once shareholder approval is obtained at an EGM, planned for early October. The exact date is still to be announced.
Operationally, the analyst sees the Australian mobile market as strong in the short term, with service revenues rising 3.6% in the year to June to $14.6bn, a fourth year of growth.
Market participants are expected to remain rational in the short term to generate returns. The analyst does, however, question pricing in the future for the tier 2 market (ex Telstra, Optus and TPG), with challenges for those large players not to leak mobile subs to the tier 2 players.
Slowing population growth post covid-rebound levels could also risk growth to the postpaid active subscriber (SIO) market with results not meeting expectations.
Jarden views TPG as well positioned to advance subscribers across prepaid with some upside risk to the telco growing its share of total mobile SIOs, noting in the six months to June, TPG increased its share by 29bps to 16.8%.
Regarding fixed business, there is an opportunity to upgrade customers under NBN Co’s Fibre Connect which may improve financial metrics but could also underpin churn.
Currently, around 37% of customers are on FTTN (fibre to the node) and FTTC (fibre to the curb) connections, with potential upside through migration to Fibre Connect. Around 40% of customers are on 50mbps plans, with improving average revenue and average margin per user at 500mbps.
Jarden's target price is set at $5.25. The FNArena daily monitored consensus price sits at $5.39 alongside two Buy-equivalent ratings, two Holds and one Sell.
Webjet Travel Group flying higher than its major competitor
There is nothing like a Middle Eastern conflict to dampen a traveler's enthusiasm. In this case, Webjet Travel Group ((WJL)) experienced an impact from the Israel-Iran skirmish in June.
At the company’s AGM, the first half trading update for FY26 showed an exceptionally robust start to the fiscal year for April and May with total transaction value (TTV) of 28%. Wilsons comments the total transaction value over the period to late August remained strong at mid-teens (%) growth, and on a relative basis to major competitor HBX Group with 8% growth in TTV over the June quarter.
The Americas' TTV growth in the mid-20% range is highlighted as the standout and overall trading has improved excluding the Middle East Africa region where performance was flat. Europe and APAC grew in the low teens (%).
Management retained FY26 guidance broadly with TTV of “at least” $3.1bn compared to Wilsons’ forecast at $1.3bn, and 1H26 revenue/TTV of between 6.2%-6.4% against the analyst’s estimate of 6.3%.
FY26 revenue/TTV is guided as “at least” 6.5% compared to Wilsons’ estimate at 6.3%.
Wilsons continues to like Webjet Travel’s “decentralised model” and “agile supplier inventory” approach, as well as the positive trading comps relative to its competitor.
The valuation at circa 12.5x FY26 EBITDA is not considered high relative to the forecast growth in EBITDA of 19% in FY26 and expectations the company can generate double-digit growth to FY30.
An Overweight rating is retained with an unchanged target price of $6.25.
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