At Multi Management Future Solutions we have done with deep research on Singtel share price analysis, Check out why this top Singapore stock is recommended to sell by our analyst.
Here is Why Singtel Share is Sell:
Singtel Company Profile:
Singtel is a Singaporean telecommunications company. The company is the largest mobile network operator in Singapore with 4.1 million subscribers.
SingTel (Z74.SI) Equity Research Report –
1. Company’s net profit declined by 19% Y-on-Y from last three years.
2. Airtel India’s results have impacted SingTel’s financial performance.
3. The telecom market in the Asia Pacific region is going to continue with high intense competition.
1. Weak Financial Performance:
SingTel has delivered weak financial performance by generating negative Y-o-Y net profit. The company’s last year performance has shown good numbers in the company’s financial due to divestment made in NetLink trust. Company’s net profit declined by 19% Y-on-Y because of lower operational efficiency and weak performance of associates.
SingTel mainly working in three business segments i.e. Group consumer, Group Enterprise and Group Digital life. Company’s operating revenue has increased by 8.8% while EBITDA has been declining due to adverse currency impact, lower revenue from voice and weak performance of associates. Group consumer generating 56% of the company’s revenue, its EBITDA has been declined by 6% due to a decline in Equipment sales, voice revenue and weak Airtel India’s performance. Group Enterprise also declined by 9% mainly (7.7%) because of adverse currency impact. EBITDA from Group Digital Life has been declined by 92 million from 52 million last year.
2. Competitive Intensity to Continue in the Indian Market:
India is the second largest market for the telecom industry is intensified by high competition after entry of Jio. SingTel is holding 39.5% stake in Airtel (India) is now facing cut-throat price competition due to rival operator Jio. Bharti Airtel’s weak performance has shown a significant impact on a company’s net performance.
SingTel will be planning to take part in Bharti Airtel’s right issue for a direct stake of 15% which will assume to drop its effective stake in Bharti Airtel by 39.5% to 35.2%. By reducing stake, Company can be able to control its losses but this will take time for Bharti Airtel to gain the share in the Indian market.
3. Company’s ROE is Trending below Industry Average:
As per data are shown above, On a profitability basis, a company is delivering low Return on Equity as compare to its peer group companies and it’s also lower than that of the industry average.
Shareholders generally prefer to invest in a company that is having high ROE or company having ROE near its industry average. A concerning sign for the investors to stick with this company because this ROE is estimated to be decline due to Bharti Airtel’s weak performance continues to affect the company’s financials.
High Share Price Dividend ratio:
The company has maintained a good dividend payout ratio historically. Company has paid an interim dividend of 6.8 percent on 30 Sep 2018, which represents a payout ratio of 77%.
With the analysis given by dividend.com, the company is staying in very high shows that the company is spending 77% of its earnings towards paying a dividend which is very high risk. It will lead to the company in a risky position, as high dividend payout will remain a company with no cash or a very less cash position.
Singapore Telecom Industry View:
The Singapore telecom industry is facing competition amongst its top rivals on SIM-only price schemes. The outlook for 2019 by S&P rating also shows the intensifying competition in Asia Pacific markets. However, it will expect to grow by 2-3% in the Asia Pacific market.
SingTel is the largest telecom company in Singapore is currently facing competition in the Singapore telecom market due to cut-throat price competition in a high mix of SIM-only plans between rivals. Here I have used comparable company analysis to understand deeper regards telecom sector performance.
Valuation using multiples can provide a picture of the company as compared to the industry as a whole. Looking at the company’s EV/Sales, it indicates how much it costs to investors relative to its per unit of sales. SingTel’s EV/Sales multiple is higher (3.7x) than that of Industry average (2.5x) which shows the company is overvalued on the basis of this multiple.
Coming to the company’s EV/EBITDA multiple is (13.8x) which is above the Industry Average of 10.6x. Higher EV/EBITDA compared to the industry average is considered being overvalued. Investors always seek to invest in a company that has a lower EV/EBITDA. EV/EBITDA shows the value of a company as a proportion of a company’s operating earnings. SingTel’s higher EV/EBITDA multiple means higher debt in the company’s capital structure and this debt is not able to results in the company’s operational efficiency. Also, looking at the company’s EV/EBIT and P/E ratio, both are high as compared to the average industry benchmark. This is clearly showing a picture of a company that is overvalued.
The valuation of a company is overvalued due to high intense competition in the Indian market is affecting the company’s results because of being a major stakeholder in Bharti Airtel. Another reasons are the company’s poor operational efficiency and lower NBN migration revenues are impacting on the company’s financials.
In the market environment we are currently experiencing and the current valuation of SingTel, the company is recommended to sell. Due to reasons stated above market for the telecom sector is going to be a concern part for investors due to intensifying competition. Once the company will start able to improvise its financials, we will change the perspective towards it.