Category: SingTel
SingTel – CIMB
Eyeing Cable & Wireless?
Departure from emerging-market assets
Maintain Underperform. Citing bankers, the media has reported that SingTel is considering a bid for Cable & Wireless Worldwide, a global provider of corporate fixed voice and data services. The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets, probably acknowledging the lack of suitable and sizeable targets. We are positive on this potential acquisition, given C&W’s strong 3-year earnings CAGR of 21% and attractive prospective P/Es of 10x and 8x. Also, SingTel can probably extract cost savings and exploit cross-selling potential between the two companies. C&W will give SingTel a global platform vs. its current regional one. C&W’s shareholding is fragmented, which makes a takeover less challenging, in our view. However, maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, in view of headwinds faced by its key units. No change to our earnings estimates.
The news
Reuters has reported that SingTel is considering a bid for C&W, citing the British newspaper, Independent. It said SingTel had contacted bankers in Asia and Europe to discuss the idea and is less than 10% of the way through the process. It cited a corporate adviser as saying that SingTel is in the early stages of its pursuit but a takeover attempt is possible.
C&W provides communication networks and services in the UK and globally. Its clients are large multinational companies, governments, carrier customers and resellers. It provides managed voice, data and IP-based services and applications across the UK, Asia Pacific, India, Middle East & Africa, Europe and North America.
Comments
A departure? The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets. This news, if confirmed, is an acknowledgement of a lack of suitable and sizeable emerging-market telco assets that could make a significant difference to SingTel. With Bharti owning Zain Africa, which is present in large parts of the continent, we believe SingTel may be running out of emerging-market options.
Positive. We are positive on this possible acquisition given C&W’s attractive growth and valuations, and potential synergies. C&W boasts a 3-year earnings CAGR of 21%, based on Bloomberg consensus estimates. It trades at CY10 and CY11 core P/Es of 10x and 8x respectively, implying a PEG of only 0.5x. Consensus forecast for FY10 earnings is about ₤198m (S$410m) or 11% of SingTel’s core net profit.
Synergies. C&W’s operations are similar to SingTel’s IT & Engineering (spearheaded by subsidiaries NCS and SCS), corporate and carriage services. Acquiring C&W would provide SingTel with a global platform vs. its current regional business. We believe there should be cost-savings and cross-selling of services.
Fragmented shareholding and modest valuations. C&W’s shareholding is also fragmented, with the majority of its shares held by portfolio funds, which makes a takeover less challenging, in our view. We believe SingTel can easily fund the acquisition given C&W’s market capitalisation of ₤1.9bn (S$3.9bn or 11% of SingTel’s market cap) and SingTel’s cash of S$1.78bn as at Jun 10, and FCF of S$3bn p.a.
Valuation and recommendation
Maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, as this potential acquisition does not change our view on SingTel. We believe the stock will be depressed by margin pressure in Singapore, lackluster earnings at Bharti and potentially rising competition in Australia.
SingTel – CIMB
Eyeing Cable & Wireless?
Departure from emerging-market assets
Maintain Underperform. Citing bankers, the media has reported that SingTel is considering a bid for Cable & Wireless Worldwide, a global provider of corporate fixed voice and data services. The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets, probably acknowledging the lack of suitable and sizeable targets. We are positive on this potential acquisition, given C&W’s strong 3-year earnings CAGR of 21% and attractive prospective P/Es of 10x and 8x. Also, SingTel can probably extract cost savings and exploit cross-selling potential between the two companies. C&W will give SingTel a global platform vs. its current regional one. C&W’s shareholding is fragmented, which makes a takeover less challenging, in our view. However, maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, in view of headwinds faced by its key units. No change to our earnings estimates.
The news
Reuters has reported that SingTel is considering a bid for C&W, citing the British newspaper, Independent. It said SingTel had contacted bankers in Asia and Europe to discuss the idea and is less than 10% of the way through the process. It cited a corporate adviser as saying that SingTel is in the early stages of its pursuit but a takeover attempt is possible.
C&W provides communication networks and services in the UK and globally. Its clients are large multinational companies, governments, carrier customers and resellers. It provides managed voice, data and IP-based services and applications across the UK, Asia Pacific, India, Middle East & Africa, Europe and North America.
Comments
A departure? The key surprise is that SingTel appears to be moving away from pursuing mobile assets in developing countries to fixed-line assets in developed markets. This news, if confirmed, is an acknowledgement of a lack of suitable and sizeable emerging-market telco assets that could make a significant difference to SingTel. With Bharti owning Zain Africa, which is present in large parts of the continent, we believe SingTel may be running out of emerging-market options.
Positive. We are positive on this possible acquisition given C&W’s attractive growth and valuations, and potential synergies. C&W boasts a 3-year earnings CAGR of 21%, based on Bloomberg consensus estimates. It trades at CY10 and CY11 core P/Es of 10x and 8x respectively, implying a PEG of only 0.5x. Consensus forecast for FY10 earnings is about ₤198m (S$410m) or 11% of SingTel’s core net profit.
Synergies. C&W’s operations are similar to SingTel’s IT & Engineering (spearheaded by subsidiaries NCS and SCS), corporate and carriage services. Acquiring C&W would provide SingTel with a global platform vs. its current regional business. We believe there should be cost-savings and cross-selling of services.
Fragmented shareholding and modest valuations. C&W’s shareholding is also fragmented, with the majority of its shares held by portfolio funds, which makes a takeover less challenging, in our view. We believe SingTel can easily fund the acquisition given C&W’s market capitalisation of ₤1.9bn (S$3.9bn or 11% of SingTel’s market cap) and SingTel’s cash of S$1.78bn as at Jun 10, and FCF of S$3bn p.a.
Valuation and recommendation
Maintain UNDERPERFORM on SingTel with an unchanged SOP-based target price of S$3.09, as this potential acquisition does not change our view on SingTel. We believe the stock will be depressed by margin pressure in Singapore, lackluster earnings at Bharti and potentially rising competition in Australia.
TELCOs – BT
Door swings open for fourth mobile operator
IDA to auction off final 3G spectrum in November despite opposition from incumbents
Local authorities will go ahead with plans to auction off Singapore’s final third-generation (3G) mobile spectrum this November despite opposition from incumbent operators.
In doing so, the government is also keeping the door open for a fourth player to break the country’s decade-long telecommunications trinity.
This 3G spectrum, which has been left unused for the last nine years, is set to go under the hammer on Nov 15.
Three lots within the 1,900 to 2,100 MHz (megahertz) frequency range will be up for grabs this time round and the reserve price for these have been set at $20 million each.
These additional details were disclosed by the Infocomm Development Authority of Singapore (IDA) in a set of auction documents published on its website last Friday.
The move is envisioned to provide existing operators – Singapore Telecommunications, StarHub, and M1 – with additional cellular bandwidth to cope with the explosive demand in mobile broadband services in recent years.
IDA statistics show that some 5.5 million wireless broadband users are now using smart phones and mobile broadband sticks to surf on the go, a trend which places a growing strain on a telco’s cellular network.
In addition, the IDA previously said the auction could also pave the way for a fourth mobile operator to join the scene.
All three incumbents protested the auction when the idea was first floated in March this year.
Instead, they collectively mooted a non-competitive, ‘administrative allocation’ approach where the remaining 3G spectrum is apportioned to them instead.
‘An auction will be a more efficient, objective, and transparent approach for allocating scarce resources because it relies on market forces to allocate them to those who value them most,’ the IDA said in its defence last Friday.
‘This takes into account the fact that radio-frequency spectrum is a scarce and finite resource and that a market-based allocation approach, such as an auction, is more effective in ensuring spectrum optimisation by operators,’ it added.
This was the same route it took in 2001 when the 3G spectrum first went on sale here.
Four lots were to be parcelled off then but the auction was scrapped as it only garnered three bids in the end.
SingTel, StarHub, and M1 eventually paid the reserve price of $100 million each for their 3G licences in 2001. The fourth unclaimed band is the one that IDA is now looking to allot.
Under IDA’s latest auction rules, the three incumbent operators can only bid for a maximum of two spectrum lots in the November auction.
Interested bidders must submit their initial offers by Oct 4 and they must be backed by bank guarantees, the regulator said.
Other companies outside Singapore’s telco fraternity are welcome to throw their hats into the ring but the spectrum will only be allotted to firms with an established local presence.
However, the IDA is giving interested foreign companies some leeway.
‘It is not necessary for such an entity to have been established in order for a bidder to participate in the auction,’ the regulator said.
This gives a new player a time buffer of at least two months between tabling their initial bids and setting up a local subsidiary.
However, market watchers believe the chances of having a fourth operator are slim as the incumbents have entrenched customer bases and they can be expected to defend their turfs aggressively.
Singapore did have a fourth operator once in 2002 in the form of Virgin Mobile, a joint venture between SingTel and Richard Branson’s Virgin Group.
However, it failed to make a dent in the market and the company pulled out within a year.
SingTel – BT
SingTel may get boost in Europe through Cable & Wireless
Singapore Telecom will be able to stake a major claim to European markets if it acquires Cable and Wireless Worldwide (C&WW), but the integration of these two giants could be challenging at first, analysts say.
On Sunday, British daily The Independent said SingTel is considering a bid for UK-based Cable & Wireless Worldwide (C&WW).
Singapore’s largest operator has reportedly contacted investment banks in the region, as well as London, to discuss the acquisition.
SingTel has refused to comment directly on the report, saying it does not respond to ‘market speculation’.
The company derives 73 per cent of its Ebitda – earnings before interest, tax, depreciation and amortisation – from overseas through Australian subsidiary Optus and its six regional mobile associates.
Market watchers have repeatedly highlighted the need for SingTel to continue spreading its wings abroad to fuel growth.
But SingTel has not made a single purchase in the three years since it bought a 30 per cent stake in Pakistani operator Warid in June 2007 – a unit that continues to struggle for profitability.
This could change, following the appointment of new international CEO Hui Weng Cheong last month.
The former chief operating officer of SingTel’s Thai associate AIS will officially take over from current chief Lim Chuan Poh when he retires at the end of this year.
C&WW is a major player in the UK telecoms market and remains dominant in several overseas markets including the British Virgin Islands and the Cayman Islands in the Caribbean.
‘SingTel does not really have a strong position in Europe, and if it does acquire C&WW, SingTel will be able to boost its credibility and capability in serving large multi-national customers in Europe and Asia,’ said telecoms consultant Soh Siow Meng.
‘However, I do think there will be a lot of issues initially when it comes to integrating SingTel’s enterprise and wholesale operations with C&WW before any synergy can be achieved.’
TELCOs – BT
Govt stands its ground on cross-carriage
But pay-TV operators to get more time to implement sharing of exclusive content
The authorities here look set to press ahead with a controversial mandate that compels pay-TV operators to share exclusive programming – despite widespread protests from content suppliers. However, the government has decided to delay the implementation of the policy by up to nine months to give the media industry more time to adjust to the new regime.
The extension was granted by the Media Development Authority (MDA) of Singapore after it carried out a two-month public consultation exercise to obtain feedback on its new cross-carriage policy.
Under the MDA ruling, pay-TV companies must allow competitors to carry exclusive programming they acquire after March 12 this year.
The aim is to tackle the content fragmentation that has started to surface in the local pay-TV market as evidenced by the bitter Barclays Premier League (BPL) tussle between Singapore Telecommunications and StarHub last year.
Exclusive programmes acquired after March 12 were supposed to be extended to other players from this month, but the effective date has now been pushed back to the first half of 2011. This means that if SingTel decides to strike another exclusive deal during the next bidding cycle for the BPL in three year’s time, all matches will have to be made available on StarHub’s cable television channels as well.
As a result, consumers will avoid the pain of forking out additional registration fees, or suffer the inconvenience of having two set-top boxes in their living rooms.
‘We (MDA) do believe fundamentally that wider distribution (of content) will help (the industry). This is the right, the best measure for the market,’ said MDA’s deputy chief executive Michael Yap.
Early results show MDA’s contentious move is already starting to deliver its intended effect. In the six months since the policy was unveiled on March 12, StarHub and SingTel have not signed any exclusive contract, Mr Yap told reporters at a briefing yesterday.
Despite MDA’s claim, the new measure has split public opinion down the middle since its introduction. Consumers and pay-TV outsiders such as M1 clearly welcomed the move as it opens the door to lower subscriptions and new revenue streams.
But content suppliers and a regional media association balked at the MDA mandate as it could complicate business models and slash revenue. This is because pay-TV companies may be reluctant to pay top dollar for premium content such as the BPL after losing the exclusivity trump card.
In May, the Cable & Satellite Broadcasting Association of Asia (Casbaa) launched a rare tirade against the Singapore authorities, accusing MDA of violating international trade agreements through the cross-carriage mandate.
It even said the move could harm Singapore’s economic interests in the long run as investments in the local media scene could dry up. Casbaa represents around 130 of the biggest media companies in the region, including content bigwigs such as Sony Pictures, Fox International Channels, HBO Asia and NBC Universal Global Networks.
In the same month, Casbaa also submitted its official response in the first MDA consultation exercise, along with 18 other organisations.
Content suppliers made up the majority of these respondents, including companies such as HBO, Discovery Asia, Disney-ABC and sports marketing agencies Sportfive and the World Sport Group.
Licensing complications, revenue-sharing and billing complexities were among the major concerns raised by the companies.
In response, MDA has moved to address some of these issues by launching a second round of public consultation yesterday.
As part of this exercise, the regulator shed more light on the types of content that will be affected by the cross-carriage ruling, along with clarifications on a host of other topics ranging from ensuing billing arrangements to service standards.
Only pay-TV programmes on mainstream services such as cable television and SingTel’s mio TV platform are affected. Content that is acquired for broadcast over emerging platforms such as interactive Web TV will not be affected by cross carriage, Mr Yap revealed. The company that acquires exclusive programming will also bill customers directly, including those who view this content through rival platforms.
In addition, if an exclusive programme is bundled as part of a group, the entire group will have to be extended to other pay-TV players, Mr Yap said.
A SingTel spokeswoman said this requirement will ‘level the playing field’ in the local pay-TV sector. ‘SingTel will review MDA’s preliminary positions and provide constructive and positive feedback for its consideration,’ she added.
Rival StarHub continues to stand behind the government’s new policy and said it will work out implementation details with all relevant parties.
When contacted, Casbaa declined to comment directly on MDA’s cross-carriage updates, saying it ‘needs time to digest and consult’ members before taking a formal position. MDA’s second consultation exercise closes on Sept 28 and the regulator will issue a final decision on cross carriage by the end of this year.