why the sell off?, page-6

On 6th May TPG provided EBITDA guidance of 203.5 to 211.5m (combined TPG + PIPE) at a Macquarie Securities conference.

Based on previous EBITDA & NPAT numbers I estimated that this would flow on to 82-86m NPAT.

On those numbers TPM (market cap just shy of $1.2bn atm) is trading at P/E of 14.3. This is at the current depressed share price.

In context, iiNet just announced $34.8m NPAT for the 09/10 FY, at current market price its P/E is 11.6.

I think the big issue with TPM was always low liquidity resulting in crazy high prices. Note that the share price was at $1.75 (P/E or 16) less than a week ago, and over $2 (P/E of 18.3) just a couple of months ago.

So I think actually any hesitations brought about by Telstra's recent posturing has reset the price at a more realistic level to the last several months of trading.

I re-looked at the numbers because of the recent fall but I'm still hesitant to take a punt.

My main concern which I'd love to hear other opinions about is that during the PIPE transaction they raised $65m in a share placement, and $360m in a new debt facility. At 30 June 2009 they had $58m in loans outstanding and they purchased PIPE at $373m. When the business was generating so much cash in 2009, why did they need to raise $425m? It could easily have been $50m less.

Maybe on the optimistic side they borrowed more in order to develop their network more quickly. Or they didn't use all $360m of the loan facility.

But more importantly, what is the current status of these loans? I would expect that there may be some convenants relating to TPG's market cap which has just fallen 25% in the last couple of months.

The random announcement on Friday evening to re-assure shareholders of their growth seems determined to arrest the share price slide. Traditionally TPG have waited til their regular half yearly announcements to surprise on the upside so the Friday announcement coinciding with the slide in share price seems unusual.

What do others think?