The Market Hates StarHub Ltd, But Here Are 3 Reasons For You To Like The Company

To call StarHub Ltd (SGX: CC3) a hated stock by the market is not an exaggeration. Over the last 12 months, Singapore’s second largest operational telco has seen its stock price fall by 18.6% to S$2.28 currently. In the same period, Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), has increased by 6.6%.

But, there are still reasons for investors to actually like the company.

The decline

It’s understandable that the market has punished StarHub’s stock. In 2017, the telco’s net profit fell by 27% to S$249 million, while its dividend was cut by 20% to S$0.16 per share.

Moreover, there are structural changes happening in Singapore’s telco market, such as the award of a fourth telco license by the authorities to the Australia-based TPG Telecom in late 2016.

But, there are still positive traits about StarHub’s business, as I had mentioned earlier.

The things to like

The first strength about StarHub that I would like to share is related to its Enterprise Fixed business segment. Although StarHub saw its Pay TV and Mobile segments report lower revenue in 2017, the Enterprise Fixed segment enjoyed a 9.2% increase in revenue to S$436.9 million. StarHub attributed the growth to higher revenue from the Data & Internet sub-segment that more than offset a decline in revenue from the Voice sub-segment. So, the Enterprise Fixed segment is a bright spot within StarHub.

The second strength about StarHub’s business is its strong stream of free cash flow. In 2017, StarHub produced free cash flow S$221.3 million, up 20.3% from 2016’s free cash flow of S$184.0 million. The improvement in free cash flow was mainly due to a reduction in capital expenditure (from S$366.7 million to S$295.9 million).

The third strength about StarHub’s business is its strong balance sheet. Yes, at the end of 2017, StarHub had way more debt than cash (S$977.5 million in total debt and S$345.2 million in cash and equivalents). But, its net debt to EBITDA (earnings before interest, taxes, depreciation, and amortistation) ratio was at merely 1.03 times at the end of 2017. This ratio is low when compared to many other telcos around the world, as they tend to sport a ratio of 3 to 4.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.