Singapore Telecommunications Limited (SGX: Z74) or Singtel, is one of the three main telcos in Singapore. At current price of S$3.08 (as of the time of writing), Singtel’s share price has declined by around 20% from the highest point of S$3.80 for the past 52 weeks. Given the fall in share price, investors might be interested in investing in the company now.
If you are one of those investors, here are three things that you should know about Singtel before investing in it.
Financial track record
One important criteria that investors should focus on in assessing a stock is how well its underlying business has performed. A good track record of stable or growing business will provide assurance that the company has a high likelihood to sustain its business performance going forward.
As for Singtel, here’s what its track record looks like for the last five years:
Source: Singtel’s 2018 Annual Report
Overall, revenue grew by 4.0% during the period while underlying net profit declined by about 2% during the same time frame. Singtel’s dividend per share (excluding special dividend) improved by 0.7 cents or 4.2% from 2014 to 2018.
Latest earnings update
Another thing that investors should know before buying Singtel’s stock is its latest performance. Here’s a quick summary of its latest earnings update.
In the latest quarter ended 30 September 2018, Singtel reported flat revenue of S$4.3 billion for FY2019’s second quarter. Yet, EBITDA (earnings before interest, taxes, depreciation, and amortisation) for the quarter declined by 10.3% year-on-year to S$1.13 billion.
Singtel’s share of associates’ pre-tax earnings was also down by 49% year-on-year to S$330 million, excluding exceptional items. Consequently, Singtel’s net profit declined by 76.6% to S$667 million. Even if one-off gains and expense were removed, the telco’s underlying net profit would still be down by 21.8% year-on-year to S$715 million on the back of weaker performances in Singtel’s core businesses, and the aforementioned fall in associates’ earnings.
Return on invested capital
One of the most important questions that investors should answer before investing in any company is whether the company has a good business. There is no quick answer to the question since investors can look at it from various angles.
However, one way I like to look at is the return on invested capital (ROIC). The simple idea behind ROIC is that high-quality businesses tend to have high ROICs while the reverse is true – a low ROIC is often associated with a low-quality business.
In the case of Singtel, its ROIC was 28% for the financial year ended 31 March 2018. The company’s ROIC is above average, based on the ROICs of many other companies I have studied in the past. For more details about this calculation, please see the article here.
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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.