SingTel - CGS-CIMB Research 2021-10-01: Favourable Deal For Optus Towers

SINGTEL (SGX:Z74) | SGinvestors.io SINGTEL (SGX:Z74)

SingTel - Favourable Deal For Optus Towers

  • SingTel will sell a 70% stake in Australia Tower Network (ATN) to AustralianSuper for S$1.9bn, pegging ATN at 38x FY21 proforma EV/EBITDA, higher than Telstra’s & US towercos.
  • Proceeds will allow SingTel to reinvest in its core business & drive new growth engines, while preserving operating cashflow for sustainable dividends.
  • Reiterate ADD with S$2.90 target price. SingTel is our top Singapore telco pick.

Sells 70% stake in Australia Tower Network for A$1.9bn

  • SingTel (SGX:Z74) has signed an agreement to sell a 70% stake in Australia Tower Network (ATN) to AustralianSuper (Australia’s largest superannuation fund) for net cash proceeds of A$1.9bn (S$1.9bn or 12 cents per share). ATN owns/operates 2,312 towers and rooftop sites (tenancy ratio: 1.6x). Optus will enter into a 20-year lease agreement for its existing towers with ATN and be the anchor tenant on > 565 new ATN sites over the next 3 years for its 5G rollout.
  • Post deal completion (by end-Oct 21), SingTel will book in ~S$0.4bn net disposal gain and equity account for a 30% share of ATN’s earnings going forward.

Lucrative 38x EV/EBITDA valuation struck for Australia Tower Network sale

  • The A$1.9bn proceeds are higher operating cashflow, and thus dividends, in the longer-run.

Creation of a regional data centre business with initial focus on ASEAN

  • Alongside the Australia Tower Singapore. This may involve investments of ~S$1bn, 50% of which can be raised via debt, with the rest possibly manageably funded by equity from SingTel and its partners.

Reiterate ADD with an unchanged SOP-based target price

FOONG Choong Chen CGS-CIMB Research | Sherman LAM Hsien Jin CGS-CIMB Research | https://www.cgs-cimb.com 2021-10-01
SGX Stock Analyst Report ADD MAINTAIN ADD 2.900 SAME 2.900