Singtel’s share price has declined significantly over the last few years. Given its low share price, I have taken a quick look at the company lately and I’d like to share an overview of the company, a view that takes in one key positive and one key negative.
Let’s start with the positive, which is Singtel’s dividend. Overall, I think the company is priced at an attractive valuation now (based on dividend yield), especially when compared to the market average. Here, I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market.
At $3.14, SingTel is trading at a dividend yield of 5.6%. This is significantly higher than the market average dividend yield of 3.8%.
On the one hand, investors are wary that the challenges that Singtel is facing might render its current dividend unsustainable. Nevertheless, a slightly reassuring fact is that the total pay-out in FY2018/19 was at S$2.86 billion, which is still acceptable given SingTel’s free cash flow generation of S$3.65 billion in the same period.
The negative that investors should focus on is the continued deteriorating financial performance in its latest resulst. Let’s look at some numbers.
In the latest quarter ended 30 June 2019, SingTel reported flat revenue at S$4.1 billion. Yet, underlying net profit declined 21.6% year-on-year to S$575 million. Similarly, free cash flow fell 16.6% to S$1.2 billion.
The weaker performance was largely due to Bharti Airtel’s losses and higher depreciation and amortisation costs in network and spectrum across the Group. Excluding Airtel, however, net profit was down 3%.
In addition to its weak quarterly results, investors should also be aware that Singtel also reported weaker financial performance for the last financial year, in which underlying net profit declined by 21% to S$2.8 billion. In other words, the company’s performance has been deteriorating for a while.
Overall, Singtel is trading at a highly attractive valuation from the perspective of its dividend yield. Yet, the telco conglomerate is facing significant challenges across its businesses, evident by the weaker numbers lately.
Thus, investors should balance the pros and cons before buying the company’s stock now, even if it is trading at an attractive valuation.
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.