NetLink NBN Trust share price in suspense

Lifetime Membership Is NetLink NBN Trust share price on magic potion? The soaring interest rates and raging inflation had walloped global stock markets, sending growth stocks into a devastating tailspin. Amid the chaos, NetLink NBN Trust share price remains rock solid. Why so?

My last article on NetLink NBN Trust share price was in 2019. An update on this counter is long overdue. In addition, an SG Wealth Builder member wrote in to enquire about the “weak” performance of the stock. As such, I will do some deep dive into the outlook of NetLink NBN Trust share price in 2022.

Needless to say, the operating environment has turned significantly dark vis-à-vis the time when NetLink NBN Trust got listed in 2017. The pandemic, Russia-Ukraine conflict, rising inflation and interest rate hikes had torpedoed numerous growth stocks. In fact, global stock markets have been on a knife edge due to these dark events. Interestingly, NetLink NBN Trust’s business appears relatively unaffected by these adverse events for the past two years.

At an average trading price of $0.96, NetLink NBN Trust is being traded at a level above the IPO price in 2017. Year-to-date, NetLink NBN Trust share price has dropped marginally by only about 3.5%. In comparison, many technology stocks like iFAST, AEM and UMS had plunged by at least two digits. In the case of iFAST, the counter has crashed 50%. In this regard, NetLink NBN Trust has been pretty resilient.

Question now: is the form of NetLink NBN Trust sustainable in light of the challenging operating environment? Following the release of FY2022 financial result, the counter seemed a bit off-colour. The Group has a policy to distribute 100% of its cash available for distribution on a semi-annual basis. So when profit before tax dropped and depreciation costs increased, unitholders might have some concerns over the sustainability of the DPU growth. For FY2022, there was a “non-cash item” of $17 million which helped to offset the earning decline and depreciation costs.

But I guess NetLink NBN Trust share price should be in suspense mode as the Group is currently undergoing the review of it’ services (including prices) offered under its Interconnection Offer with the IMDA. The regulatory review is expected to be completed by early 2023. The last price review by IMDA was completed in May 2017. The revised prices were determined using the Regulatory Asset Base (“RAB”) model for the five-year period effective from January 2018 until December 2022.

Source: IMDA website

Under the RAB model, assets that were purchased up to 2012 (year inclusive) are valued at 2012 prices, while assets purchased after 2012 are valued at the year of purchase. Under the current inflationary climate, the weighted average cost of capital (“WACC”) would have to be revised to account for the increasing interest rate and rising inflation. This should lead to higher regulatory prices for NetLink.

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 in NetLink share currently. Whether NetLink share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

NetLink NBN Trust share price to swim or sink?

In my opinion, the key reason for NetLink NBN Trust share price’s resilience amid the bearish market sentiments is probably because [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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