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Foolish Face-off: SingTel vs. Verizon Communications

DuelWelcome to the latest Foolish Face-off, where we’ll see whether Singapore-based telecommunications operator SingTel (SGX: Z74) can talk down its American counterpart, Verizon Communications (NYSE: VZ).

For those late to the party, the Foolish Face-off pits companies with similar operations against each other in a friendly competition to see who comes out tops.  As investors, we recognise that sometimes it’s hard to make a choice between two such companies and that’s why we’re here to help.

Without further ado, let’s turn to the ring with SingTel and Verizon!

Introduction

SingTel is Singapore’s biggest listed company by market value at S$59b. According to the company’s investor face-sheet, it provides “a wide spectrum of multimedia and infocomms technology solutions, including voice, data and video services over fixed and wireless platforms.”

Unlike local competitors Starhub (SGX: CC3) and M1 (SGX: B2F), which only have operations in Singapore, SingTel has substantial interests in foreign lands. In fact, Australia’s second largest telco, Optus is wholly-owned by SingTel. That’s in addition to SingTel’s 32% stake in Indian telco, Bharti Airtel. In all, SingTel’s services can be found in more than 26 countries around the world.

If you think SingTel has a diverse global reach, wait till you meet Verizon Communications, which has operations in more than 150 countries. To keep up with Verizon’s operations around the world, the company keeps more than 183,400 employees (as of 31 December 2012) on its payroll.

As a provider of data-transmission services, Verizon’s focusing big on its high-speed 4G LTE network, which covered nearly 89 percent of the U.S. population as of January 22, 2013. The company also has interests in fibre-optic networks and cloud-computing data centres.

  SingTel Verizon
Market Cap S$59b US$143.7b
Last 12 month Sales S$18.2b US$117.0b

 

Round 1: Valuation

As investors, it’s important to know the valuations of shares to see which is being offered at a cheaper price in the market and for that, we’ll turn to the Price-to-Earnings (PE), Price-to-Sales (PS) and Dividend Yield that the shares carry.

  SingTel Verizon
PE 16.8 125.9
PS 3.2 1.2
Dividend Yield 4.5% 4.1%
Share Price S$3.70 US$50.24
*Dividend Yield figures are based on total dividends paid in the last completed financial year. The rest are based on last 12 month’s financial figures.

SingTel’s shares have been awarded a much lower PE and a higher dividend yield than Verizon’s shares in the market, making it the winner here.

Winner: SingTel

Round 2: Profitability

In the Face-off’s second round, we’ll be looking at the profitability of both telco operators by its Return on Assets (ROA) and profit margins. The former tells us how efficient the companies are at utilising its assets to generate profits while the latter paints a picture of their efficiency at turning each dollar of sale into profit.

  SingTel Verizon
Operating Margins 16.7% 12.8%
Net Margins 19.3% 1.0%
Return on Assets 8.7% 4.2%
*Based on last 12 months’ financial figures

We can see that SingTel has a much better handle on its profit margins and ROA, handily beating out Verizon on all three fronts. Here again, SingTel triumphs!

Winner: SingTel

Round 3: Growth

The third and final round sees us comparing the two companies’ growth. Revenue and earnings-per-share (EPS) growth over the years will help increase the intrinsic value of the shares of a business, making it beneficial for shareholders and that’s why we’ll be looking at those two numbers. Dividends provide income for investors and if it has increased over the years, shareholders would have been enriched along the way, which is why we’re also looking at its growth.

  SingTel Verizon
Revenue Growth CAGR 5.0% 4.4%
EPS Growth CAGR 0.4% 8.7%
Dividend Growth CAGR 7.7% 4.5%
*Financial figures are based on the companies’ last 5 completed financial years.

Verizon’s EPS growth has been faster than SingTel’s, but its top-line has increased at a slower clip. And, in terms of dividends, SingTel’s shareholders have definitely seen their dividend-checks growing bigger at a faster pace than Verizon’s investors. For that, SingTel takes home Round 3!

Winner: SingTel

Foolish Bottom Line

Final Score: 3-0 to SingTel!

SingTel takes home the winner’s medal here today with cheaper shares, better profitability and faster growth.

But, it’s important to note that definitive conclusions can’t be made here as there are plenty of important elements in a business that we’ve yet to cover. Some notable examples include the balance sheet strength of the two companies, as well as their cash flow situation.

If you’re interested to find out more about how other companies in the same industries stack up against each other, then stay-tuned for more our Foolish Face-offs in the future!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.