Will Singtel shares recover in the second quarter?
Analysts still like Singtel’s dividend potential, despite them cutting share price targets following the telco's lower Q1 earnings.
What is the Singtel share price?
Shares of Singapore Telecommunications (Singtel) (SGX: Z74) are down 4% since the company reported lower earnings for the first quarter of fiscal 2020/2021 earlier this week.
As at 11:00 SGT on Wednesday 19 August 2020, Singtel shares are trading at S$2.33 each on the IG platform – 4.5% lower than last week’s closing price of S$2.44.
IG’s market analysis shows that ‘buys’ form 100% of all trades on the Singtel counter today and 67% of all trades across the week so far.
Additionally, 94% of client accounts also currently hold ‘buy’ (long) positions on the stock, indicating an expectation for Singtel’s share price to rise in the immediate term.
Analysts say Singtel remains a dividend play
The stock currently has a 12-month consensus share price target of S$3.06, alongside an average rating of ‘buy’ – based on a Bloomberg poll of 17 brokers.
The price target represents an upside of roughly 31% from the last traded price.
RHB analysts on 18 August 2020 downgraded their price estimate on the stock to S$3.20 per share from S$3.40, while keeping a ‘buy’ recommendation, citing the company’s worse-than-expected earnings.
As a result, the researchers also cut their FY2021 to FY2023 full-year core earnings by 12% to 14%. Nevertheless, they predict that there will be ‘some earnings respite’ in the second quarter of 2021 with ‘mobility restrictions progressively easing’.
Meanwhile, Morningstar analysts presented the most bearish case of the lot at S$2.30 per share (down from S$2.55 previously) on a ‘narrow moat’ (hold) rating, citing Singtel’s reduced market share in both Singapore and Australia as a main driver of the downgrade.
‘Moreover, Optus is struggling for profitability after removing the one-off NBN payments. We retain our narrow moat rating for the company but would recommend investors wait for a better price to buy,’ they wrote on 17 August.
Nevertheless, Morningstar has rated the stock at a price-to-earnings ratio of 18x, which is still slightly above its 10-year average.
They also reiterated the stock’s dividend potential – calling it a ‘dividend play’, putting their base case at S$0.09 per share (giving an annual yield of 3.9%) in fiscal 2021.
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Singtel’s June earnings falls 24% to S$897 million
The telco announced voluntary business updates for the three months ended 30 June 2020 before the market opened on Monday 17 August 2020.
It reported an operating revenue of S$3.54 billion for the quarter ended 30 June 2020, 14% lower than that of Q1 2019/2020’s S$4.1 billion.
The reported revenue also missed Bloomberg analyst estimates (S$3.62 billion) by 2.3%.
Earnings before interest, depreciation and amortisation (EBITDA) fell 24% year-on-year to S$897 million this quarter, from S$1.18 billion a year ago.
The group attributed the declines to lower equipment sales, roaming and prepaid mobile revenues, delays or deferments of some ICT projects and reduced customer spending caused by ‘challenging market conditions’ as a result of Covid-19 shutdowns across Singapore and Australia.
Singtel also took a net exceptional charge of S$364 million on its Indian subsidiary Bharti Airtel for the June quarter, versus just S$34 million a year ago.
This mainly comprised Singtel’s share of Airtel’s additional provisions for the adjusted gross revenue matter following the Supreme Court of India’s decision in July 2020 and exceptional tax charges.
Singtel poised to capture ‘new revenue opportunities’: CEO
Singtel Group CEO Ms Chua Sock Koong said that while travel and movement restrictions have impacted the group’s revenue, it has also witnessed an ‘unprecedented adoption of digital services among consumers and companies’.
She added that the company’s digital investments over the years puts it ‘in a strong position’ to capture ‘new revenue opportunities’.
Looking further ahead, Ms Chua stated: ‘Following our 5G licence win in Singapore, we’ve embarked on our 5G rollout to strengthen our network and market leadership to capture new growth opportunities and will continue to transform our operating model for greater efficiencies, better customer experiences and leaner cost structures.
‘We have not let up in our ongoing business contingency plans to keep our operations running optimally and our staff safe and supported, and we remain committed to supporting the broader community and vulnerable groups through this crisis.’
How to trade Singtel with IG
Are you feeling bullish or bearish on Singtel shares? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:
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