DBS Group Research is reiterating its “hold” recommendation on StarHub CC3 with a target price of $1.05, as the research house waits for more clarity on the group’s earnings trajectory. “As StarHub has committed to a minimum 5 cents dividend per share, its 5% dividend yield is reasonably attractive, while waiting for earnings recovery,” says DBS.
Meanwhile, StarHub has on June 26 earmarked approximately $50 million to establish a share buyback programme to repurchase up to 3% of its issued share capital of approximately 51.9 million shares. This is part of its DARE+ initiative to enhance long-term shareholder returns.
See more: StarHub to establish $50 mil share buyback programme
The programme will be financed through surplus cash, considering the group's short to mid-term capital expenditure requirements, cashflow trends, cost savings, and the revenue and margin growth anticipated from its DARE+ transformation programme. It will also account for future growth plans and funding necessities.
The way DBS sees it, the magnitude of this buyback is more than $2 million to $3 million bought back each year for employee stock options usually. As per the mandate, the company is authorised to repurchase up to 10% of the issued share capital, the maximum price that will be paid by the company for repurchases will be 105% of the average closing price over the period of five market days.
While in the case of off-market repurchases, the maximum price will be 110% of the average closing price over the period of five market days. The completion timeline of the programme may extend beyond one year, depending on the purchase prices of the shares and in accordance with the annual review and parameters outlined by the Share Purchase Mandate.
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DBS sees the potential of the buyback shares to be utilised for mergers and acquisitions (M&A) including industry consolidation.
The acquired shares will be held as treasury shares and utilised according to the objectives outlined in StarHub's 2023 EGM Circular, such as including annual vesting of employee share plans, potential utilisation as consideration for significant future M&A’s to enhance the company's market position, or cancellation to reduce the company's share capital.
“Additionally, as of 1QFY2023 ended March, StarHub maintains a low Net Debt to EBITDA ratio of 1.45x, providing ample capacity for future investments aimed at driving growth. This financial strength ensures sufficient flexibility for seizing potential opportunities that may arise,” says DBS.
As at 11.00am, shares in StarHub are trading at $1.03.
