Singtel share price: what to expect from Q2 earnings

Analysts remain optimistic over Singtel’s prospects, even after the company saw its cash flow battered during the first quarter of FY20.

With Singapore Telecom or Singtel (SGX: Z74) set to release their Q2 financial results on November 6, we take a look at the company’s most recent quarterly performance and the current outlook from analysts.

Singtel share price in focus

Singtel's (SGX: Z74) latest set of quarterly results – covering the first quarter of FY20 – painted the picture of a somewhat volatile company.

Here, the S$53.7bn blue-chip telco noted that it was making good progress executing on its current strategy: as its digitisation endeavours gained traction, its growth engines fired up and its post-paid mobile customers rose.

While such endeavours may be tracking well to plan, the telco’s traditional financial metrics looked less impressive during the first quarter.

On the top-line, revenue remained ‘stable’ – coming in at S$4,113m in during the quarter. The company noted that sales growth was impacted by a ‘cautious business environment, intense competition & erosion of voice revenue.’

Singtel’s CEO, Ms Chua Sock Koong said of these results, ‘as we continued to execute to strategy in the first quarter. We added postpaid mobile customers in Singapore and Australia and grew our digital businesses Amobee and Trustwave.’

CEO comments aside, earnings also struggled during the first quarter, with the company’s (EBITDA) coming in at S$1,184m – down 2% overall – but up 1% on a constant currency basis.

Worse still, free cash flow and NPAT earnings collapsed during the quarter, falling 17% and 35%, respectively. On the front of free cash flow, the telco cited higher CAPEX and ‘lower associate dividends’ as key drivers of this decline.

Bloomberg analysts have suggested that profits may continue to decline during Q2, with increased competition in the enterprise market also potentially having an adverse effect on margins.

As such, investors will likely be keen to see how earnings and margins have fared when the telco releases its Q2 FY20 results to the market next week.

Positive takeaways

There were some positives at least, with the company noting during the first quarter that:

‘Consolidated EBITDA (excluding NBN migration revenues) is expected to increase by high single digit and free cash flow, excluding spectrum payments and dividends from associates, is expected to be around S$2.4 billion.’

The telco also pointed out that its FY20 guidance remained unchanged. Framed against the above Bloomberg analyst commentary however, it will also be a key point of interest to see if the company upgrades or downgrades its current guidance during its next wave of results.

Indeed, though the potential for profit weakness may be set to continue, Singapore Telecom is overwhelming liked by analysts, according to Bloomberg Data.

13 analysts rate the stock a buy; while six rate it a hold. Not a single analyst rates the telco a sell. HSBC has the loftiest expectations of any broker it would seem: with a share price target on Singtel of S$4.05 per share.

According to Bloomberg Data, the average 12-month share price target on Singtel is S$3.60 – a modest increase on the last cited price of S$3.29. By comparison to HSBC, Morningstar has the lowest share price target on Singtel, at S$3.06 per share.

Year-to-date the Singtel (SGX: Z74) has been a quiet performer, rising a little more than 14% in that period.

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