Telcos have
been the traditional favourite investment choice for many dividend investors.
Since the
news of the 4th Telco entry and the potential heighten competition
from Netflix on the pay-TV segment, share prices of the existing 3 listed telcos
in Singapore have not been doing well, particularly from September 2016. From January 2016 to October 2017, the share price of M1 & Starhub have retreated by more than 30% and 24% respectively while Singtel is relatively resilient, edging up by 6.2%
Investing in Singapore Telcos
Without delving into their operational performances and speculating about the future, let’s run some quick trailing twelve month (TTM) numbers to see how each Telco stacks up against one another.
Company
|
Share Price
|
Dividend
(cts)
|
Dividend
yield
|
EPS
(cts)
|
PE
|
ROE
|
P/B
|
Debt/
Equity
|
*Dividend
payout ratio
|
*Free cashflow/ share cts)
|
Singtel
|
3.76
|
17
|
4.5%
|
23
|
16.3
|
14%
|
2.1
|
0.34
|
74.8%
|
11.93
|
Starhub
|
2.68
|
19
|
7.1%
|
17
|
15.8
|
96%
|
11.7
|
2.48
|
110%
|
5.19
|
M1
|
1.785
|
11
|
6.2%
|
14
|
12.8
|
35%
|
4.3
|
1.15
|
77.6%
|
10.76
|
* Indicates calendar year-end data information
In terms of
financial matrices, it seems that Starhub scored the worst among the three due
to its highest debt ratio and dividend payout ratio exceeding both EPS and free
cashflow. This implies that the current rate of dividend payment might not be
sustainable for Starhub.
Conversely,
Singtel has the strongest balance sheet (lowest debt ratio) and while its PE
seems to be the highest, its Price-over-Book ratio is the lowest among the
three telcos. So it would mean the price that the investors are paying for Singtel are backed by more assets. Also, Singtel has the headroom capacity to gear up its balance sheet further should it need to and still could maintain its dividend payment (note that Singtel’s free
cashflow/share for FY17 was 17.36cts and in the current period, it has received S$1.1bil in proceeds from Netlink IPO)In conclusion, it seems that the financials of Singtel is rather strong and it has probably the best ability to sustain its current dividend among the three telcos.
On another side note, all three companies have engaged in share buy-backs as their share prices declined over 2016 - 2017. Let’s us take the hindsight view of the outcome:
Interestingly,
despite larger amounts spent on buy-backs, the share prices of M1 and Starhub
continued to decline further. M1 which utilized the highest amount of S$28M on
share purchases, saw its share price still decline 26% below its average price
paid. For this year, Starhub seems to have “thrown in the towel” and stopped buying
back its shares to-date 2017 while Singtel actually increases its share buyback this year, but spending
a modest amount of only S$4.7M vis-à-vis its market capitalization (probably
main purpose of Singtel's buy backs is for its employee stock option scheme?).
