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Singtel May Plan to List its Australian Unit: Should Investors Rejoice?

·4-min read
Singtel Building
Singtel Building

Singtel (SGX: Z74) is once again in the spotlight.

An Australian news outlet, The Australian, had reported that the telco was mulling an A$8 billion listing of Optus, its Australian subsidiary.

Investment banks Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) were supposedly hired to assess the IPO.

The blue-chip telco has, however, refuted these news reports.

It clarified that it had no intention to list Optus and that this news is “highly speculative”.

However, Singtel could still revive this plan at a later stage should market conditions improve.

Should investors cheer this potential move to unlock value for the telco?

Advancing its strategic review

It was slightly more than a year ago when Singtel announced its strategic review, impairing two US-based businesses and taking an exceptional charge on Optus.

The accounting adjustments saw the telco taking a S$1.2 billion hit to its fiscal 2021’s (FY2021) earnings.

CEO Yuen Kuan Moon also indicated during the FY2021 conference call that the telco is looking to unlock value via divestments or spin-offs of various divisions or assets.

In October last year, Singtel announced the sale of a 70% stake in Australian Tower Network (ATN) to AustralianSuper, helping the group to unlock A$1.9 billion.

At the same time, a regional data centre platform will be formed to act as a springboard for further growth.

In February this year, the telco surprised the market by announcing the redevelopment of its Comcentre headquarters along Orchard Road.

The total cost of redevelopment will be greater than S$2 billion and will maximise the site’s potential and increase its building efficiency.

A month later, Singtel monetised a 1.6% stake in Airtel Africa for approximately S$150 million through a private placement exercise.

These moves demonstrate the group’s commitment to going asset-light and slowly unlocking the value of its assets.

Mulling various options

To be sure, this is not the first time that Singtel is subject to market rumours.

Just last month, Singtel’s share price surged 4.5% when the Economic Times of India reported that it intended to sell a stake in Bharti Airtel, its Indian associate, to Sunil Mittal (chairman of Bharti Enterprises) for US$2 billion.

The telco was quick to refute this news report and stated that it intends for this associate to remain a core investment.

The presence of these rumours regarding Bharti Airtel and Optus seems to point to a potential major unlocking of value for one of Singtel’s units in the near term.

Acquisitions can power growth

To be fair, the telco probably does not need any immediate boost to its financials from a large deal.

It reported higher underlying net profit for FY2022 as associates contributed a higher share of profits.

Its final dividend of S$0.048 was also double that of the year before.

Singtel has been busy in the past year not just with its strategic review but has also been acquiring businesses to bolster its capabilities and reach.

Back in March, its subsidiary NCS announced the acquisition of Australian IT services company Dialog Pty Ltd for A$325 million.

A month later, NCS purchased digital services firm ARQ Group for A$290 million while ATN, together with AustralianSuper, acquired Axicom, a provider of communications tower infrastructure, for A$3.58 billion.

The group’s fourth acquisition came earlier this month when it acquired an additional 3.78% stake in its Thai associate Intouch Holdings Public Company Limited (BKK: INTUCH).

These purchases will require a gestation period to allow for their smooth integration into the Singtel group and may begin contributing as soon as FY2023.

Singtel is also establishing partnerships to pursue other sources of income.

It worked with United Overseas Bank Ltd (SGX: U11) and fintech company ADDX to successfully price Singapore’s largest foreign currency digital bond.

Singtel also clinched the Malaysian digital bank licence together with its partner Grab Holdings (NASDAQ: GRAB), a good follow-up to its December 2020 Singapore digital bank licence win.

Get Smart: Gearing up for a recovery

The future looks bright for Singtel as it looks forward to recovery for its roaming services as economies reopen.

The telco’s share price is up around 10% year to date after hitting a 52-week high in early May.

Investors should sit tight and wait for more news on the telco’s next moves.

If there is any further unlocking of value from Singtel’s stakes in either Optus or Bharti Airtel, it may result in the group paying out a special dividend.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

The post Singtel May Plan to List its Australian Unit: Should Investors Rejoice? appeared first on The Smart Investor.

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