Singtel share price to explode with data centre REIT?
Will the management drop the bombshell? Singtel share price became the talk of the town in recent days when DBS analysts claimed that Singtel may cut dividend payouts to $0.13 to $0.15 for FY2021 and had set target price of $3.12 for Singtel share price. On the other hand, there were market speculations that Singtel could possibly monetize its data centres through REIT, thereby unlocking value and freeing up cash flow for capital expenditure and dividends.
DBS’ argument is that results of Singtel’s regional associates will cause harm to Singtel’s bottom-line and roiled Singel share price in the process. To this end, I do not dismiss such a possibility. If investors looked back, share of pre-tax profits from regional associated reached an alarming 6-year low of $1.5 billion in FY2019, resulting in net profits to collapse to $3.1 billion. If the regional associates continued to underperform, things would surely spiral out of control.
Then again, do you think Singtel management will leave it to fate? To be frank, I have never been a big fan of banks’ stock analyses, especially those generated by DBS. I always take their stock analyses with a pinch of salt because their target prices were often so off-tangent and out of touch with reality. Take for example, in November 2018, DBS suggested that there would be strong rebound for Starhub in FY2020 and had a BUY recommendation with target price of $2.45 for Starhub share price. Fast forward a year later, Starhub share price suffered a gut-wrenching meltdown to reach a low of $1.30. In this regard, I will share my insights on whether Singtel share price will sink or swim in the coming months, taking into the possibility of the listing of its data centres.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in Singtel shares before. Whether Singtel share price surge or collapse will have no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
Singtel share price will melt with dividend cut
From shareholders’ perspective, especially Temasek Holdings, a dividend cut or a change of dividend policy from fixed amount to variable ratio will be “unthinkable” for Singtel share price. History had shown that announcement of dividend cut would send share prices into tailspin. Classic examples would be Asian Pay TV Trust, StarHub and SingPost. Incidentally, Temasek Holdings is the major shareholder for all three entities.
Both Asian Pay TV Trust and StarHub slashed dividends in 2018 and 2019 respectively. Subsequently, both counters got bombed out. For SingPost, the share price tanked from $2.00 in FY2016 to reach the current $0.95. In the SingPost saga, the corporate governance scandal had caused major shareholder, Singtel to intervene. Simon Israel, Chairman of Singtel, was swiftly appointed as Chairman of SingPost. In that episode, Simon Israel changed the dividend from an absolute amount to one based on a pay-out ratio ranging between 60 per cent and 80 percent of underlying net profit for each financial year. Thus, expect Singtel share price to suffer the same fate if dividend is cut.
Based on the lessons learned from the above episodes, I can imagine the management of Temasek Holdings will want to avoid cutting dividend at all cost in order to preserve the equity value of Singtel share price. Why is this so, if you may ask? This is because CPF Board is the second largest shareholder, with shareholding of about 830 million. A plunge in Singtel share price due to dividend cut would surely [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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