Singtel shares suffer blow from digital units’ impairments

• Singtel (SGX: Z74) share price slides to S$2.32 per share
• It is exploring a potential restructuring or divestment of two business units
• Net exceptional losses could stand at S$839 million for 2H2021
• Analysts said the impairments are unlikely to affect Singtel’s dividends
• Buy and sell Singtel stocks with an IG account

Singtel stock dives to three-month low

Shares of Singapore Telecommunications (Singtel) slid 3.7% to finish last Friday (14 May 2021) at S$2.32, its weakest close since 04 February 2021.

The stock was dragged by news that the telco will record billion-dollar charges for its struggling digital business units and has begun to weigh options for them.

Shares have recovered 1.7% since, and are trading at S$2.36 as at 14:50 SGT on Monday (17 May).

Out of 19 analysts, 15 recommended ‘buy’ on Singtel shares while four said ‘hold’. Their average target price was S$2.90, Bloomberg data showed.

On Friday, bullish calls came from Credit Suisse, Macquarie, and CIMB, with target prices of S$3.35, S$3.21, and S$3.10 respectively.

In Citi’s view, the current share price weakness offers ‘an enhanced opportunity to buy’.

Singtel will book S$1.21 billion in net exceptional losses

The telco revealed on Friday morning that it booked non-cash impairment charges of US$438 million and US$250 million against its investments in advertising-technology provider Amobee and cybersecurity firm Trustwave, respectively, for the second half of its financial year ended 31 March 2021.

This was amid ‘rapid shifts in the fast-moving digital marketing and cybersecurity industries and economic shocks’ from the Covid-19 pandemic, which affected Amobee and Trustwave’s ability to scale, Singtel said.

It thus started a strategic review of both US-based businesses to ‘sharpen the group’s focus and ensure that these assets are positioned for growth’.

Under this review, which may take up to 12 months, product or business segments might be restructured, or there may be full or partial divestment or combinations with other industry players.

Meanwhile, its Australian telco subsidiary, Optus, will make non-cash impairments and write-downs of A$197 million, mainly for Optus’ legacy fixed-access networks.

Overall, net exceptional losses for the Singtel group are expected to come in at S$839 million for the second half and S$1.21 billion for the full fiscal year.

Singtel will announce its full-year results on 27 May 2021.

Why are analysts mostly unfazed?

Despite the blow delivered to Singtel’s stock price, research teams were not too pessimistic, The Business Times reported.

Citi analysts said the one-off impairments are mainly non-cash in nature, so they will probably not affect Singtel’s dividends, as the group has been paying dividends based on underlying profits.

Meanwhile, DBS’ research team noted that Singtel may be trying to attract strategic investors for Amobee and Trustwave or attempt a partial divestment of both businesses.

The upcoming sale of Optus’ telecommunications towers in Australia could also provide ‘material gains’, which could counter the impairments, Citi pointed out.

However, Bloomberg Intelligence analysts said the impairments may raise concerns around Singtel’s execution track record of mergers and acquisitions (M&A) and future growth options.

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