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Why Have StarHub Ltd’s Shares Fallen By 25% Over The Past Year?

The last 12 months haven’t been kind to Singapore’s stock market as seen in how the Straits Times Index (SGX: ^STI) has slipped by around 19%.

As bad as a double-digit fall in the market barometer has been, there are individual stocks that have fared worse and one such example is local telecommunications outfit Starhub Ltd  (SGX: CC3).

Based on their current price of S$3.31, Starhub’s shares have fallen by 25% compared to a year ago and are sitting just seven cents above a 52-week low of $3.24.

Starhub, which is one of the three telecommunications companies in Singapore’s market alongside Singapore Telecommunications Limited  (SGX: Z74) and M1 Ltd (SGX: B2F), has five main business segments: Mobile, Pay TV, Broadband, Fixed Network Services, and Sale of Equipment (think sales of mobile phones).

With that, let’s dig into some of the possible reasons behind Starhub’s dismal stock market performance over the last 12 months:

1. Lacklustre recent results

In 2015, StarHub only managed to eke out very slight growth in revenue and profit of 2.4% and 0.5%, respectively.

On the cash flow front, Starhub’s free cash flow for 2015 stood at S$216 million which is lower than the S$346 million in cash dividends that the company had paid out in the year. The free cash flow number had also declined from S$333 million in 2014.

2. More debt on the balance sheet

As of 31 December 2015, the telecommunications outfit had S$173 million in cash and equivalents with borrowings of S$688 million, giving rise to a net-debt position of S$514 million. This is an increase from end-2014, when there was ‘just’ S$423 million in net-debt.

3. Heightened competition

There are currently only three telecommunications companies in Singapore. But, a new fourth player may join the scene in the near future and possibly lead to heightened competition. In fact, even before a new telco had entered the fray, the trio of incumbents had recently started a price war.

Furthermore, internet video streaming service providers such as Netflix have been making inroads into Singapore, bringing competition for StarHub’s Pay TV segment. In 2015, the Pay TV segment made up 16% of StarHub’s total revenue.

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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 James Yeo doesn’t own shares in any companies mentioned.