Singapore Telecommunications Limited (SGX: Z74), or Singtel, is one of the three main telcos in Singapore. The other two are M1 Ltd (SGX: B2F) and StarHub Ltd (SGX: CC3). Singapore’s telecom industry has come under significant pressure in the last two years, mainly due to the expected change in competitive dynamics amid the entrance of the fourth player – TPG Telecom. As a result, the incumbents saw both their financial performance and share price weakening in the past two years. Singtel, the biggest among them, was not spared either. In the last 12 months, its share price was down by…
Singapore’s telecom industry has come under significant pressure in the last two years, mainly due to the expected change in competitive dynamics amid the entrance of the fourth player – TPG Telecom.
As a result, the incumbents saw both their financial performance and share price weakening in the past two years. Singtel, the biggest among them, was not spared either. In the last 12 months, its share price was down by about 20%.
Despite all the negativity out there, there are still good reasons to get excited about the company. Here are two of them.
Cheap just got cheaper
In a previous article here, I wrote that that Singtel might be trading at a marginal bargain price. Then, it was trading at about S$3.28.
At the time of writing this article, it is trading at an even cheaper price of S$3.04. At this price, Singtel is trading at price-to-book (PB) ratio, price-to-earnings (PE) ratio and dividend yield of 1.7 times, 8.8 times and 5.8% respectively.
This compares favourably to the market’s PB ratio, PE ratio and dividend yield of 1.1 times, 10.4 times and 3.1% respectively. Here, I’m using SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
In other words, Singtel is trading at below market average for two out of three of the traditional valuation metrics. Though there are clearly issues to worry about the company, its current price gives us plenty of reasons to relook at the company’s prospects in the longer term.
After all, investors are paid to wait
One of the main sources of investment income for investors is the profit paid out by the company in the form of dividends. Here, investors would seek companies that have demonstrated stable track record of consistent or better still, growing dividends over a long period of time.
As for Singtel, it has grown its annual dividend from 16.8 cents per share in FY2013 to 17.5 cents in FY2018. Including the special dividend per share of 3 cents, the total dividend for FY2018 would be 20.5 cents.
What’s more important here is that the company expects to “maintain its ordinary dividends of 17.5 cents per share for the next two financial years and thereafter, will revert to the payout of between 60% and 75% of underlying net profit”.
I think what Singtel is trying to say is something like, “We will pay you 17.5 cents per share in dividend for the next two years while we sort out our problems”.
The Foolish takeaway
Singapore’s telco industry is clearly going through a volatile period. However, does that justify the decline in Singtel’s market capitalisation of close to S$23 billion (or about 32% from its peak in 2015)? If the answer is no, then this might be a good time to get excited about the company.
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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.