We recommend eligible Shareholders subscribe to narrow moat TPG Telecom's non-renounceable retail entitlement offer at the fixed price of AUD 5.25 per share. The Offer price is 20% below our fair value estimate of AUD 6.60—one that already incorporates the total AUD 400 million capital raising to help fund TPG's mobile strategy in Australia, and the risks associated with management's plans to take on the three incumbent network operators. Furthermore, the offer price is 10% below the current stock price.

The last time TPG tapped the equity market in November 2015, the two major shareholders, Executive Chairman David Teoh with 34.4% shareholding and Washington Soul Pattinson with 25.2%, did not participate in the AUD 10.40 placement offer to raise AUD 327 million. We also recommended at the time that shareholders pass on the opportunity, as the offer price was substantially above our intrinsic assessment then.

This time around, the two shareholders have fully taken up their entitlements, highlighting the attractive discount that the Entitlement Offer has been priced at. Indeed, their AUD 238 million commitment, combined with the AUD 82 million already raised from institutional investors, means that TPG needs to raise only another AUD 80 million under the retail entitlement offer—one that is underwritten.

Analyst: Brian Han

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