“Singtel’s share price has demonstrated a positive correlation of 89% with its ROIC, implying when the ROIC performs better, the share price inches up,” writes Mittal in his Feb 9 note.

ROIC is measured using a company’s profitability as the percentage of total capital employed, which is a combination of book value and net debt.

Back in May 2020, Singtel’s share price dropped by 26% to $2.50, which was then the telco’s ROIC dropped from 8% to 5% because of weakened core business and lower contributions from the regional associates.

At this level, Singtel’s ROIC was below its weighted average cost of capital, which was at 6.5%.

“The WACC of a company often acts as a breaking point for the ROIC resulting in a significant movement of the stock price,” observes Mittal.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/boustead-singapore-big-bold-and-beautiful-says-ocbc?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Boustead Singapore is 'big, bold and beautiful', says OCBC</a></b></span>

Mittal projects Singtel’s ROIC to increase by 190 basis points over the next two years, led by a sharp recovery in its associate in India, Bharti.

Other factors contributing to the lift include further divestment of non-core assets, and also the recovery in mobile roaming revenue across the region.

In addition, Singtel might enjoy potential catalysts in the form of special dividends to be dished out over the coming two years.  This will be on top of the 14.5 cents in regular dividends expected, which implies a yield of 5.7%.

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