Where next for Singtel as shares sink to five-month low?
With equity analysts estimating that Singtel’s Q1 net profit could drop by 16%, will share price plunge further to March lows?
Singapore Telecommunications (SGX: Z74)) (Singtel) is scheduled to release its first quarter results for financial year 2020/2021 (FY2020/21) on Thursday 06 August 2020.
Below, we highlight three areas that investors should be aware of ahead of the earnings report.
Singtel stock is down 13% since May 2020
Singtel shares plunged 4.8% at the start of this week to a five-month low, after its chairman Simon Israel stepped down from his role. Mr Israel was appointed chairman in July 2011.
Mr Israel’s resignation, which also saw him exit the board of directors following the annual general meeting (AGM) on 30 July, comes just ahead of the group’s first quarter earnings.
The telco’s shares closed at S$2.40 each on Tuesday 04 August 2020, IG data showed.
Singtel shareholders also voted in favour of a scrip dividend scheme during last week’s AGM, allowing them to be paid in shares instead of cash.
Group chief executive Chua Sock Koong also told shareholders during the AGM webcast that ‘given the unprecedented disruption from Covid-19’, the group has decided not to provide any guidance on its outlook, capex and dividend for the current financial year.
"We will update the market when there are material developments and provide guidance when there is greater clarity in the operating environment,’ she added.
The Singtel stock is down by nearly 13% since the start of May 2020, with Covid-19 uncertainties still weighing on investor sentiment.
Analysts rate Singtel a ‘buy’ alongside lower price targets
The Singtel stock currently has an average rating of ‘buy’, based on a Refinitiv survey of 16 brokers.
DBS analyst Sachin Mittal lowered his 12-month price target earlier today to S$3.04 on a ‘buy’ call, down from S$3.09 previously. This represents an upside of over 27% from the last traded price.
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Mittal wrote: ‘Singtel’s investment in its associates is worth S$2.57 per share based on their market value, implying that its core business in Singapore and Australia is trading at a negative value of -S$0.09 per share.’
He also expects Singtel’s dividend yield to be re-rated to 4.5% (from 4.9%) – in line with its 15-year historic average – with the key catalyst being a potential S$1.2 billion divestment of its Australia towers owned by its subsidiary Optus.
As such, he concluded that a projected FY2021 dividend per share (DPS) of S$0.1225 at a 75- 80% pay-out ratio is sustainable in the long term.
Meanwhile, UOB on 28 July 2020 maintained their Singtel share price target at S$2.80 and rating at ‘buy’, citing a possibility of the group focusing on cash conservation and liquidity in preparation for the 5G roll-out.
Singtel’s Q1 net profit expected to drop by 16%
Analysts polled by Refinitiv are expecting for Singtel’s Q1 FY2020/21 net income to decline an estimated 16% year-on-year to S$453.4 million, with revenue also dropping 12% to S$3.6 billion from the same period a year ago.
DBS’ Mittal predicts that the telco will report underlying net profit of S$529 million for the quarter, which would represent a 11% quarter-on-quarter and an 8% year-on-year decline.
He wrote in a 04 August 2020 note that his estimation is largely based on continued weaknesses in the group’s Australian (due to potential drop in National Broadband Network migration fee) and Singapore (due to suppressed roaming and pre-paid revenues) businesses.
On a more positive note, however, he posits that these will be offset by an estimated S$500 million rise in the group’s Indian associate Bharti Airtel’s FY2021/2022 pre-tax earnings.
Bloomberg Intelligence analysts shared the same sentiment, stating that Singtel’s profit drop ‘may have narrowed’ in the June quarter.
They cited several reasons for this, including higher equity income from regional associates such as Bharti Airtel, as well as lower marketing and advertising expenses during the Covid-19 lockdown.
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