Singtel (SGX: Z74) (OTCPK: SNGNF) shares are down 3.5% on the day so far. Z74 shares were as much as 6.8% down at one point. Given the size of the corporation (Singtel’s market capitalisation is some $33 billion and that’s in full fat USD) that’s a pretty big valuation change there.
As to what’s actually done at Singtel: “Singapore Telecommunications Limited, together with its subsidiaries, provides telecommunication services to consumers and small businesses in Singapore, Australia, the United States, and internationally. The company operates through Optus, Singapore Consumer, Group Enterprise, NCS, Trustwave, and Amobee segments. The company provides mobile, pay television, fixed broadband, voice, and content and digital services,” So, fairly standard integrated telecoms company then. Like so many, the privatised - to some extent - version of the former state monopoly. This being Singapore of course it was always fairly efficient, not quite like the behemoths of Europe.
Singtel share price from Google Finance
The specific worry today is: “SHARES of Singtel : Z74 -4.55% neared a two-month low on Wednesday (Aug 2) amid heavy trading, as analysts from Citi flag softness from Telkomsel, its regional associate in Indonesia.” This is the problem with being a mature company. We’ve not got - and aren’t likely to get - any significant increase in market size. Sure, there’s the certainty that as countries get richer their telecoms usage will rise. But that’s all structural with the overall level of economic growth. Percentage points a year that is. We’re just not in one of those hot and go-go markets like social media where growth rates can be in the tens and hundreds of percent a year.
This then means that changes in those macroeconomic factors are seen as leading to changes in the growth rate of the mature company. As with, say, steel companies - their growth rate is usually very closely linked to the general economy in any one specific country. Oil companies are leveraged to the global oil market and so on.
Thus worries about economic growth in Indonesia feed through into the share prices of telecoms providers in that market place. Worth also noting that the marginal costs of telecoms are near zero. Near all of the costs are in the having and running of the network itself. So, marginal use translates straight through to the bottom line and profits. Which is why even marginal changes in growth rates - and thus marginal usage - have such an effect on the share price.
