DBS raises Singtel's target price to $3.18 on higher ROIC
In addition, Singtel might enjoy potential catalysts in the form of special dividends to be dished out over the coming two years.
Sachin Mittal of DBS Group Research has raised his target price for Singapore Telecommunications Z77
to $3.18 from $3.15, on projections that the telco will be able to improve its return on invested capital (ROIC) in the coming two years.
“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.
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%.
See Also:
Click here to stay updated with the Latest Business & Investment News in Singapore
DBS, citing Singtel's regional data centre ambitions, keeps 'buy' call and $3.15 target price
Local telcos to enjoy more growth in 2023; Simba likely to be acquired: DBS
Bharti Airtel slips after posting profit miss amid 5G rollout
Get in-depth insights from our expert contributors, and dive into financial and economic trends