(Nov 20): The special dividend declared by Singapore Telecommunications on Nov 9 was a disappointment to the market. Shareholders were expecting a bumper payout following the successful divestment of a 75% stake in NetLink NBN Trust, which completed an IPO in July.
However, Singtel approved a payout of only three cents a share — amounting to $500 million of the $2.3 billion in proceeds from the divestment. The remainder of the proceeds will be used for spectrum payments and growth investments, according to the company. Singtel also declared an interim dividend of 6.8 cents a share, representing a payout ratio of 60% of underlying net earnings in the half-year period ended Sept 30.
In a note dated Nov 10, RHB Research Institute Singapore says Singtel could have rewarded shareholders more handsomely given the telco’s strong balance sheet and free cash flow of more than $2 billion. The last time Singtel had paid out a special dividend was in FY2011, when it had a pile of cash generated by healthy operations here and overseas.
Singtel performed well in 1HFY2018, thanks to improved performance across all its businesses. Total revenue rose 3.7% y-o-y to $2.6 billion, from $2.5 billion a year ago, while earnings almost doubled to $3.8 billion, from $1.9 billion previously.
“Our 1H results have been achieved against a tougher business backdrop, a testament to the strength of our core and digital businesses. Digital and ICT services now account for 25% of our revenue, reflecting positive momentum in our digital transformation. Our digital marketing arm Amobee has scored more customer wins and is gaining strong momentum in Asia,” says Singtel Group CEO Chua Sock Koong in a Nov 9 statement.
The company’s digital businesses grew the fastest as revenue surged 89% y-o-y in the half-year period, says Singtel. Digital ad unit Amobee delivered strong revenue growth and reported its first earnings before interest, taxes, depreciation and amortisation (Ebitda) of $11 million in 2Q. It broke even in the preceding quarter.
Amobee has expanded relationships with agencies such as Dentsu Aegis and added new companies such as HSBC Holdings and Ascendas to its customer base. Its performance was also enhanced by the acquisition of Turn, an adtech company, which was completed in April.
Singtel continues to invest in its digital business units. Its mobile over-the-top streaming service HOOQ, for instance, launched an initiative called the HOOQ Filmmakers Guild this year to develop local talent and meet subscribers’ growing demand for local content. HOOQ has since co-produced pilot episodes for six films with budding Asian filmmakers as part of this initiative. Singtel’s digital businesses also consist of data analytics unit DataSpark and venture capital fund Innov8.
DBS Group Research says these investments in new businesses should not impact Singtel’s ability to keep up its dividend payments. “Singtel is far ahead of its peers in digital transformation,” analyst Sachin Mittal writes in a note dated Nov 9. “While many telcos struggle with their regular dividends, Singtel on top of its regular dividends is in a position to invest $1 billion in growth companies without exceeding net debt-to-Ebitda of two times as per our estimates.” In the next five years, Mittal reckons Singtel’s investments in its ICT and digital businesses could pay off. He sees these businesses contributing 40% of the company’s total revenue.
Moody’s Investors Service, however, is concerned about pressures on the company’s cash. “Singtel’s commitment towards high shareholder payouts — coupled with its high [capital expenditure] and spectrum payments — has resulted in negative free cash flow [based on Moody’s definition] since 2015, and the situation will continue to pressure its cash flow metrics,” the credit rating agency says in a Nov 10 statement.
