Singapore Telecommunications Limited’s Share Price Is Down 19% From A 52-Week High: Is The Company A Bargain Now?

Singapore Telecommunications Limited‘s (SGX: Z74) share price of S$3.08 right now is 19% lower than a 52-week high of S$3.80. This raises a question: Are Singtel’s shares a bargain now? This question is important because if the company’s shares are cheap, it might be a good opportunity for investors.

The business

Singtel is the largest operational telco in the Singapore market. Although its name suggests that it is a Singapore-focused company, the truth is that Singtel derives most of its income from overseas.

In its financial year ended 31 March 2018 (FY2018), Singtel generated free cash flow of S$3.61 billion, of which only 31.2% came from Singapore. Australia accounted for 27.4% (this comes from Singtel’s wholly-owned Australian telco, Optus), while dividends from Singtel’s regional associates made up the rest.  The term regional associates refers to the telcos in the region that Singtel has investments in, and the main investments include AIS and Intouch in Thailand; Airtel in India, Africa, and Sri Lanka; Globe in the Philippines; and Telkomsel in Indonesia.

The valuation

Unfortunately, there is no easy way to tell if Singtel’s shares are a bargain. But, we can still get some insight by comparing the telco’s current valuations with the market’s. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

I will be using the 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).

Singtel currently has a PB ratio of 1.74, which is higher than the SPDR STI ETF’s PB ratio of 1.08. Similarly, the telco’s PE ratio is higher than that of the market’s (15.7 vs 11.2). On the other hand, Singtel’s dividend yield of 5.7% is significantly higher than the SPDR STI ETF’s yield of 3.6%; the higher a stock’s yield is, the lower is its valuation.

In sum, we can argue that Singtel is priced at a premium to the market due to its higher PB and PE ratios, even though its juicier dividend yield might be attractive for income investors.

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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.