Author: tfwee
TELCOs – BT
Telco stocks expected to ring in good value
Analysts see them as fairly safe bets in times of economic uncertainty next year
SINGAPORE’s three telco stocks are among the best bets as defensive stocks for next year amid economic uncertainty and continuing volatility in the financial markets.
Not surprisingly, Singapore Telecommunications, the biggest listed company by market capitalisation here, gets the most votes.
But StarHub and M1, ranked the Number 2 and 3 telco players, have their own fans, too, who look to the smaller telcos for their high dividend payouts.
Telco stocks will continue to perform well next year benefiting from the liberal foreign workers policy as well as Singaporeans’ continuing love affair with the handphone.
They also offer strong recurrent cash flows and attractive dividends and cash payouts. In addition, the telcos’ focus on their own business and their conservative management teams are reassuring to shareholders in that they hold no nasty surprises in terms of investments in high-risk financial instruments or foreign currency trades that other companies have bought to maximise returns on their spare cash.
‘With rising oil prices and lingering concerns about the impact of the sub-prime crisis on the US economy, we continue to maintain a defensive stance focusing on stocks and sectors with good earnings visibility, reasonable valuation and attractive yield,’ said Lim Jit Soon, Citigroup Singapore strategist, in a report last month.
‘We overweight telcos, media, banks and conglomerates. We are neutral, property and underweight transport, tech, consumer staples and healthcare,’ he said.
DBS Vickers Securities’ Sachin Mittal this month said the telecom sector is a direct beneficiary of healthy economic and population growth from the influx of foreign workers and tourists.
The pre-paid mobile phone subscriber growth is estimated at around 150,000 every year for the next 10 years.
DBS has forecast 6.5 per cent economic growth in 2008.
SingTel gets the most votes from analysts for its strong performance and ability to win the lion’s share of new subscribers.
SingTel is also the top choice for its investments in the top growth markets in the region – in particular, its 30 per cent stake in India’s Bharti and 35 per cent interest in Indonesia’s Telkomsel.
Even potential regulatory reversals on the spectrum front at Bharti and recent anti-monopoly rulings in Indonesia are seen as small risks on the horizon.
Macquarie Research analyst Ramakrishna Maruvada calls SingTel the ‘perfect cocktail’.
‘Our positive thesis rests on three planks: fundamental value driven by Indian investment and prospects for capital management; supportive relative valuation metrics; and top-down thematic considerations amid global credit concerns,’ he said.
Mr Maruvada said SingTel’s estimated $4.5 billion surplus capital by FY 2009 provides room for its regional expansion strategy or capital management initiatives.
He added that market focus on credit issues has led to a global re-rating of liquid telecom stocks offering diversified exposure to emerging markets. ‘SingTel benefits from this theme.’
It isn’t that the three telcos don’t face risks.
These include mobile number portability to be introduced next May and the nation-wide broadband network which will bring in more competitors.
But their strong cash flow generating ability trumps most risks.
A UBS report on the 2008 outlook for Asian telecoms said that as the markets mature, many operators are facing a similar enviable dilemma: slowing topline growth and a build-up of cash.
UBS estimated SingTel’s dividend yield to be 3.5 per cent and 4.1 per cent for 2007 and 2008, respectively.
For StarHub, it forecast dividend yields of 13.2 per cent and 5.4 per cent; and for M1, it’s 15.5 per cent and 7.7 per cent.
DBS’s Mr Mittal sees 3.6 per cent cash yield for SingTel, 5.3 per cent for StarHub and 7 per cent for M1 in the current year.
Going forward, he expects StarHub and M1’s total cash yield to be up to 10 per cent for the next one to two years as a result of capital management initiatives.
MacCookPSF – Reuters
Investors count Centro losses, rivals eye assets
MELBOURNE (Reuters) – Some of Australia’s top fund managers face big losses from the this week’s 80 percent slump in Centro Properties Group shares, as several of the mall operator’s rivals begin to scan its assets for possible purchases.
Centro (CNP.AX: Quote, Profile, Research), which owns 700 shopping malls in the United States, has lost some A$4.5 billion (1.9 billion pounds) in market value after it revealed that it and its affiliates were having trouble refinancing A$3.9 billion in debt due to the global credit crunch.
Documents filed with the Australian Securities and Investment Commission show that Barclays (BARC.L: Quote, Profile, Research) unit Barclays Global Investors Australia, Colonial First State, and UBS Asset Management (UBSN.VX: Quote, Profile, Research) all held stakes of over 5 percent in Centro.
“It was a concentrated register. When you see the end of month performance numbers, you’ll see it’s had an enormous negative impact on those who owned it. Bonuses will be on the line,” said BT Investment Management portfolio manager Jack Chemello.
“The demise of Centro is going to be a defining event in property investment in Australia, between those who got it right and those who got it wrong.”
Centro shares fell as much as 86 percent to an all-time low of $0.42 on Tuesday, before recovering to $0.80. They have since risen to A$1.32 at Thursday’s close after the company said it was still viable and did not have to sell assets. It has to renegotiate some debt facilities by a mid-February deadline.
Colonial, the wealth management arm of Commonwealth Bank of Australia Ltd (CBA.AX: Quote, Profile, Research), said it had a 12.18 percent stake in Centro as at December 12, across a large number of funds.
The stake was worth A$587 million on December 12. If unchanged, it would now be worth less than a quarter of that — about A$136 million — based on Centro’s last traded price.
A Colonial spokeswoman declined to comment on the specific value of the stake.
LOST VALUE
Barclays’ Australian arm raised its Centro stake on December 4 to 9.3 percent, worth some A$568 million then. The stake would have been worth A$103 million on Thursday. Barclays did not return calls seeking comment.
UBS Asset Management said its stake in Centro on December 13 was 5.09 percent, worth A$258 million. That compares with A$57 million as of Thursday. UBS confirmed the shareholding on Thursday, but declined to comment further.
Close to 90 percent of the shares on issue have been traded in the past four days.
Australia’s big banks have declined to comment on reports about their exposure to Centro. Local media has put Commonwealth’s exposure at A$1.2 billion, National Australia Bank Ltd’s (NAB.AX: Quote, Profile, Research) at A$1.1 billion and Australia and New Zealand Banking Group’s (ANZ.AX: Quote, Profile, Research) at A$1.2 billion.
Meanwhile, some of Centro’s rivals are preparing to make bids for some A$2.6 billion worth of the company’s retail assets, The Australian newspaper reported on Thursday, citing no sources.
The paper said Westfield Group (WDC.AX: Quote, Profile, Research), Commonwealth Bank-managed CFS Retail Property (CFX.AX: Quote, Profile, Research) and GPT Group (GPT.AX: Quote, Profile, Research) were among those vying for Centro’s Australian wholesale trust, which has assets of A$2.6 billion, including interests in shopping malls in Melbourne, Sydney and Perth.
“We look at any opportunity that meets our business model and strategy and that is across all opportunities in the market place,” a GPT spokeswoman said, declining to comment on Centro.
The other firms declined to comment.
“There is definitely significant demand for some of their assets, and there are clearly some good quality assets,” an industry source told Reuters.
“Good quality Australian assets are generally not available, so when they do become available they are in very high demand.”
Source : Reuters
MacCookPSF – news.com.au
Centro keeps $1bn debt secret
CENTRO’S property group has admitted it failed to properly disclose more than $1 billion of debt in the months leading up to its $5 billion implosion this week.
Responding to a query from the Australian Securities Exchange, Centro (cnp.ASX:Quote,News) last night admitted it had “incorrectly” classified $1.097 billion of debt as “non-current” in its June 30 full-year accounts and the misstatement had been identified by its auditors.
Centro’s high level of debt caused its $5 billion meltdown this week, and its failure to properly disclose the $1.097 billion may cause it to face legal action from the corporate regulator.
Centro (cnp.ASX:Quote,News) could also be sued by investors who bought stock in the company between the August 9 release of Centro’s full-year accounts and September 6 when “the correct classification was available to the market”.
The revelations come as it emerges that Centro chief executive Andrew Scott could walk away with a $7 million “golden handcuff” payout despite having taken the company to the brink of collapse.
Under generous management arrangements, Mr Scott and other key Centro executives’ contracts include termination clauses which in total could see Centro shareholders face a bill of well over $18 million if those executives lose their jobs for anything other than “gross misconduct”.
The global credit crisis was sparked in late July by the sub-prime fallout in the US. Centro first disclosed debt funding problems to the market on Thursday last week when it placed itself in a trading halt.
On Monday, Centro announced it had been unable to refinance $3.9 billion worth of debt, and its shares plummeted from $5.70 to close at $1.32 yesterday.
The company was queried by the ASX about when it first became aware it would have “material difficulties” in refinancing its debt obligations.
Centro said it had “discussed alternative refinancing structures through the commercial bank market” between “October and early December” but the group believed until “late last week” that it would be able to refinance that debt.
“Throughout these discussions (with the commercial banks) Centro was confident that it could enter into long-term funding commitments for the maturing debt,” Centro told the ASX.
Centro’s annual report says that under most circumstances, if Mr Scott loses his job he will be paid out two times his total annual remuneration.
He earned a base salary of $1.23 million last financial year, but with incentives the package totalled $3.59 million.
Angry institutional shareholders are believed to have discussed applying further pressure to have Mr Scott and senior management dismissed.
Shareholders are expected to call for Mr Scott’s head after February 15 – the date when Centro has to refinance critical short-term debt. However, that move could be delayed until the end of the financial year to allow for the sell-off of parts of its 700-centre, $26.6 billion US and Australian shopping centre portfolio, an institutional shareholder told The Australian.
Centro is believed to have opened a due diligence room to allow likely predators to investigate buying its $2.6 billion Australian wholesale shopping centre fund.
One shareholder said yesterday that if the Australian Securities and Investments Commission launched a successful action against Centro management, then shareholders might not face golden handcuff payouts if management were sacked.
Plaintiff law firms Maurice Blackburn Cashman and Slater & Gordon said this week that they were in talks with institutional shareholders to see if litigation over lack of disclosure was viable.
Source : news.com.au
MacCookPSF – SGX
Update on debt position & Centro exposure
Debt position
In light of recent events in the listed property trust market, the responsible entity wishes to advise investors and the market of the current debt and interest rate hedging arrangements for the Fund.
Lender: OCBC
Amount of Facility: $68 million
Amount Drawn Down: $68 million
Facility Expiry: 14 May 2008
Current Loan-to-Value Ratio: 26%
Floating Interest Margin: BBSY plus 0.90%
Interest Rate Hedging: $40 million Fixed until 29 December 2010
$28 million Variable
Based on 30 November 2007 valuations.
The responsible entity is comfortable with the Fund’s current debt & hedging position and the forecast distribution of 2.625 cents per unit for the December quarter and 10.5 cents per unit for the 2008 Financial Year.
Centro exposure
MPS invests in a broad range of unlisted and listed real estate funds with investments currently in 51 different funds managed by 30 different property investment managers.
As at the date of this announcement, MPS has the following investments in Centro managed entities:
Name of Fund / Listed or Unlisted Investment / Amount $ / Latest advised value $ / % of MPS
Centro Retail Trust / Listed / 3,051,199 / 1,538,484 / 1.08
Centro MCS 32- International No. 2 / Unlisted / 1,000,000 / 1,320,000 / 0.55
Centro MCS 33 / Unlisted / 1,500,000 / 1,845,000 / 0.77
Centro MCS 33- International No. 3 / Unlisted / 1,262,500 / 1,489,750 / 0.62
Centro MCS 35 Unsecured Notes / Unlisted / 1,237,500 / 1,460,250 / 0.61
Centro MCS 36- International No. 4 / Unlisted / 2,272,000 / 2,272,000 / 0.95
Centro MCS 36 Unsecured Notes / Unlisted / 1,278,000 / 1,278,000 / 0.54
The total exposure to Centro is $1,538,484 or 1.08% to the listed Centro Retail Trust and $9,665,000 or 4.04% to a range of Centro managed unlisted property trusts. Centro has advised that the December quarter distributions of the unlisted Centro MCS Funds will not be impacted by the debt refinancing issues being faced by Centro Retail and Centro Property Group.
Source : SGX
StarHub – BNP
We held an investor luncheon with StarHub’s management last week. Questions mainly centred on the outlook for the various segments, regulatory updates, dividend policy and iPhone dynamics. We expect StarHub to pay out special DPS of SGD0.15 in February next year, which should act as a catalyst for the stock. Maintain BUY and TP of SGD3.45.
Key points from investors luncheon
Key business segments to see healthy growth
StarHub expects its three key business segments –mobile, broadband and cable TV – to see healthy growth. The key drivers for growth are: 1) an expanding population; 2) more expatriates; and 3) buoyant economic outlook. Management expects penetration rates for mobile to go up to 130-135% (from 114.1% at end-October) in three to five years and for wired broadband and cable TV to go up to 75-80% (from 65-68%) and 55-60% (from 44.3%), respectively, in two to three years.
MNP impact neutral at worst, NBN details out tonight
The implementation of full mobile number portability (MNP) is expected in May-June and is likely to result in higher retention costs for one to two quarters as all three operators seek to retain customers on long-term contracts. With its attractive bundled offerings, we believe the impact on StarHub is neutral at worst. As for the National Broadband Network (NBN), a request for proposal is scheduled for release tonight, which would provide us with more details. Our view is that it is unlikely to be too disruptive to the current network incumbents.
Expecting special DPS of SGD0.15 in February
Earlier this year, StarHub paid out additional cash of SGD442.3m to shareholders based on a targeted net debt to EBITDA ratio of around 1.8x 2006 EBITDA. Assuming management sticks to this target of 1.8x, we believe StarHub could potentially dish out about SGD260m to shareholders, which translates into SGD0.15 per share. This would translate into a yield of 5.1% and is on top of the SGD0.16 DPS that StarHub has already committed to pay out in 2008.
iPhone’s current arrangement may not work here
We understand that Apple’s current arrangement, which involves an exclusive operator (AT&T in US), may not work in Singapore as regulations here do not allow exclusivity. It will be interesting to see if Apple will ditch its current arrangement or will bypass Singapore altogether.
Maintain BUY; target price of SGD3.45
StarHub’s defensive qualities make it stand out in times of stock market uncertainty. Maintain BUY, with DCF-derived TP of SGD3.45.