Singtel share price: What's the outlook after tower network sale?

• Singtel (SGX: Z74) share price hits S$2.56 per share
• It is selling 70% of Australia Tower Network for A$1.9 billion
• The telco also plans to expand its data-centre platform regionally
• Keen to take advantage of Singtel’s rising share price? Open an account with us to long the stock now.

Singtel stock price rises further

Shares of Singapore’s biggest telecommunications conglomerate were trading 0.4% higher at S$2.56 as at 10:48 SGT on Wednesday.

Out of 19 analysts, 17 recommended ‘buy’ on Singtel shares, two suggested ‘hold’, and none gave ‘sell’ calls, Bloomberg data showed. Their average target price was S$2.97, implying potential upside of 16.5% based on Tuesday’s close of S$2.55.

CIMB’s research team, which rated the stock ‘add’ with a S$2.90 target price, recently highlighted that digital banking may be a value creator for Singtel in the long run, even though it may not be highly profitable in the first five years.

Singtel sells 70% stake in ATN

Earlier this month, Singtel announced a partial sale of Australia Tower Network (ATN) to unlock value from its infrastructure assets.

ATN operates Optus’ passive telecommunications tower infrastructure, and was a wholly-owned subsidiary before the divestment.

Singtel raised about A$1.9 billion in net cash proceeds from selling a 70% stake in ATN to Australia’s largest superannuation fund.

Bloomberg Intelligence analysts believe that the divestment may not boost dividend expectations, as the proceeds are in line with a previously reported A$2 billion level.

The deal involved 2,312 network towers and rooftop sites. Optus will continue to have access to the towers through a long-term lease agreement, and also be the anchor tenant on 565 new build-to-suit towers to be built over the next three years.

DBS analysts noted that the proceeds will fund the 5G rollout and new growth initiatives at Optus, which should give the group some room to invest in new opportunities.

Maintaining a ‘buy’ call on Singtel shares with a S$3.37 target, RHB analysts said they viewed the transaction positively, and expect Singtel’s FY2022 core earnings to rebound after four years of decline, with green shoots of recovery in the mobile business.

The sale of the Optus towers and comes at ‘a generous premium’, RHB noted. The deal price is at a rich FY2021 enterprise-value-to-Ebitda ratio of 38x, commanding a heftier premium than recent comparable deals with 10-15x ratios.

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Singtel inks regional data-centre partnerships

Beyond Singapore, the telco heavyweight also recently created a regional data-centre business, with Thai power and infrastructure company Gulf Energy and Jakarta-listed Telkom Indonesia as partners.

The platform will initially focus on Southeast Asia. Singtel signed a memorandum of understanding with Gulf Energy to build and develop data centres across Thailand.

It is also in advanced talks with Telkom to explore acquiring and building data-centre assets in Indonesia and the region.

RHB analysts said the regionalisation of the data-centre business will bring opportunities to upsell cloud and cybersecurity solutions across the expanded footprint.

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