Stock Review: Singtel

My friend asked me what price is a good buy for Singtel. I told him I don't know, but that I am keen to buy Singtel over its competitors M1 and Starhub because Singtel still has a monopoly in the traditional telecommunication network (fixed lines used by businesses). They also have indirect ownership of the fibre broadband network through NetLink Trust (previously known as OpenNet). Starhub and M1 will not have that long-term advantage Singtel has. That is why, financials aside, from a business standpoint, Singtel has a monopoly advantage.

Growth potential
Digging into Singtel's financial report, what stands out is that Singapore contributes to just a quarter of its EBITDA (earnings before taxes, depreciations, etc.).

Singtel's EBITA by geography

Regional mobile associates include India's Airtel, Philippine's Globe Telecom and Indonesia's Telkomsel. Australia's share comes from Optus. AIMS AMP Capital Industrial REIT (another company listed on the SGX) has a 49% stake in Optus Centre. You can consider looking at that REIT if you think that Optus Centre is a good investment.

If you think that Singapore is crowded enough, I bet the developing neighbours are just as crowded. Just based on the assumption that population will definitely grow in these developing countries, we can safely assume that the growth potential (over a very long term of 10 to 20 years) of Singtel is high. Organic population growth effects take many years to materialise.

Quality of Earnings
Singtel has an impressive investment income. What I mean is income it gets from doing nothing. Ok, they probably still have to do some work, but it is basically income derived from just shareholdings. 63% earnings come from its operations (Singapore, Australia) and 37% from its associates and joint ventures. This is akin to you having a full-time job with a gross salary of $63, say per day, and at the end of the day when you go home, you have another $37 waiting for you at home. Some people call it passive income. This diversification provides a substantial cushion for localised or seasonal dropped in earnings (e.g. Australia dollar depreciation, or drop in iPhone sales in Singapore, etc.)

Singtel's EBITA by source

Stock volatility/stability
Stock volatility or stability is important to me. I personally feel that Singtel's price spread (reaching a high of $4.40 and $3.60 low in a span of 6 months) is just an effect of the wider market swings, so I am not concerned. The Straits Times Index had a 20% price spread as well.

Singtel's stock price changes

What I am more interested in is who the price swingers are. Flipping through the financial report, we will see that the top 20 shareholders own 97% of its shares. There is also stock options granted to staff and there are activities every month. What this means is that the people who are buying and selling everyday on the SGX are likely day traders, small fries looking for long-term investments (like me), or staff who want to cash out their stock options (of course they have to pay tax on their gains too).

The daily volume has been in the range of tens of millions in the past few months, which is small, compared to the approximately 16B shares in total. 3% of that is 480M. If you see 20M shares changing hands on a day, it's only a very small portion of investors.

Singtel's Top 20 shareholders

So if you can accept that price will fluctuate because of the profile of sellers, then you should not worry about the price you pay.

Assuming a dividend of 16.8 cents (an payout has been consistent), and it's last closing price of $3.64, a yield of 4.6% is decent. The market price will likely follow the STI trends, i.e. if STI drops by another 5% from 2830 to 2690, then we can expect the price to drop from $3.64 to $3.46. Similarly, if the STI rises, then the price will rise. So the more important question is whether you are happy with the 4.6% yield based on the current price.

Singtel's dividends over the past 6 years

A buy plan that I may consider that costs ~$7,000 with eventual average price of $3.46 for 2000 units:
Buy 500 units at $3.65
if the price drops by 5%, buy 500 units at $3.46
if the price drops by 10%, buy 1000 units at $3.29
if the price goes up, just be contented that I had bought some and wait for the next opportunity.

The writer does not own any shares mentioned.