Singapore Telecom – declining lines Premium

Sorry, there was interference on the line. Was that a decline in revenues at Singapore Telecom? Is that right? So what about the dividend?

Investors in Asian telecoms stocks, used to fat payouts from industry behemoths such as SingTel, need not fear too much from their darling’s first forecast revenue decline since it acquired Australia’s Optus more than a decade ago. The expected slippage – a low single-digit decline for the year to March 2013 from the low single-digit growth previously expected – is related to tough competition in Australia. There is less drama below the headline: SingTel’s earnings at the operating level should be unaffected owing to tight controls and a reorganisation. That has helped produce a juicy $1.8bn in free cash flow in six months, and nearly half as much again is expected by March. Those dividends therefore look safe.

The real question is what SingTel does with the cash besides comfort shareholders. Its minority holdings across Asia and Africa have made it a one-stop shop for investors wanting quick exposure to emerging and frontier markets where demand for mobile services will grow. SingTel’s decision earlier this year to focus on digital opportunities suggests that it will consider more acquisitions. The usual caveats apply over monitoring prices and performance of future deals. Not all of its bets have worked out: it has just reclassified its 30 per cent of Pakistan’s Warid as available for sale, thus removing the operator’s $15m-odd of losses from the income statement. In April, it wrote off its investment in Bangladeshi operator PBTL.

And still, the cash juggernaut rolls on. Investors award SingTel a higher forward price/earnings ratio than the global industry average (13 versus 12) partly for that reason. That seems fair, but quite enough while investors wait to gauge the depth of this slowdown and what SingTel does with the cash.

Email the Lex team in confidence at lex@ft.com

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