3 Wise Views on Singapore Telecommunications Limited

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing.

For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent and Foolish perspectives.

To demonstrate, let’s use leading Asian communications group Singapore Telecommunications Limited  (SGX: Z74) as an example. Better known as Singtel, the company is the largest of the big three in Singapore’s telecommunications industry with the others being M1 Ltd (SGX: B2F) and StarHub Ltd (SGX: CC3).

Singtel’s business can be divided into three major buckets: the Group Consumer Division, the Group Enterprise Division and the Group Digital Life Division. You can read more about Singtel in here.

With this company, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view

At its closing price of $4.23 today, Singtel sports a trailing price to earnings (PE) ratio of 18. This is higher than the PE ratio of 13.3 that the SPDR STI ETF (SGX: ES3) sports; the SPDR STI ETF happens to be a close proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI).

With Singtel’s valuation being higher than the market aerage, the value investor’s enthusiasm for the company may be dampened.

Furthermore, Singtel carried S$563 million in cash and equivalents and S$8.98 billion in debt as of 31 March 2015. Although debt comes with the territory for telecommunication companies in Singapore, Singtel’s significant borrowings may make it less enticing for the conservative value investor.

All that being said, Singtel does generate a lot a lot of free cash flow (more on this shortly) – and that’s a trait which might attract the value investor.

The income investor’s view

At its current price, Singtel offers an attractive dividend yield of 4.2%.

Over Singtel’s past five fiscal years, it has generally been growing its dividend payout (the dividend payout for the financial year ended 31 March 2011 included a special dividend of 10 cents per share; without the special dividend, Singtel’s dividends would have had a clear upward trend). The attentive income investor would have noticed this rising trend.

Financial year ended 31 March Dividend per share (Singapore cents)
2011 25.80
2012 15.80
2013 16.80
2014 16.80
2015 17.50

Source: Singtel’s Website; Singtel’s Earnings Report

For the same period, the communications giant also generated stable free cash flow (operating cash flow minus capital expenditures) as you can see in the chart below. In this case, the consistency of Singtel’s free cash flow might provide financial viability to its dividend payout and that’s something the income investor may like to see.

Singtel OCF FCF

Source: Singtel’s Earnings Report

The recurring nature of Singtel’s business and the diversity of its revenue sources may also provide stability in its financials and these too are traits which may attract the income investor.

Given the characteristics of Singtel that we’ve seen so far, it could be one stock that the income investor would be pleased with.

The growth investor’s view

Meanwhile, the growth investor might not have much love for Singtel.

Singtel segment revenue

Source: Singtel’s Earnings Report

The main issue with Singtel in the eyes of the growth investor would be the company’s lack of meaningful revenue growth in its two largest business segments, the Group Consumer Division and the Group Enterprise Division, for the period shown in the chart just above.

While the Group Digital Life segment has almost doubled its revenue over the past year, its revenue contribution is still tiny in the grand scheme of things.

Singtel EBITDA

Source: Singtel’s Earnings Report

Moving on, we can see that Singtel’s three main business divisions have failed to grow their EBITDA (earnings before interest, taxes, depreciation, and amortisation) as well over the past three years.  The telco’s associates and joint ventures have contributed growing EBITDA though, and it may be the one of the few areas that could possibly intrigue the growth investor.

In any case, the growth investor might want to give Singtel a pass by virtue of its lack of growth and above-average valuation (as mentioned earlier).

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us.

Collectively, the differing views may be worth much more than the sum of their parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.