CGS-CIMB Research is keeping its “add” recommendation on Singtel with an unchanged target price of $3.10, as Singtel announced that Optus will be acquiring amaysim for a consideration of A$250 million ($240.0 million).
Amaysim is the largest mobile virtual network operator (MVNO) in Australia and fourth largest mobile provider in the country with 1.19 million mobile customers as at Oct 20, 2020.
In the same announcement, Optus says it has launched Gomo, a digital-only offering in the MVNO market targeting value-conscious Australians seeking easy mobile connectivity. Under Gomo, customers will be able to access onboarding, service and payments 24/7 under one app. Gomo customers will also be able to benefit from Optus’ premium nationwide.
In a Nov 2 report, analyst Foong Choong Chen says, “We believe funding for the deal should not be a problem as the consideration sum is relatively small (compared to Optus’s FY20 capex of A$1.4 billion), and will only slightly raise Singtel group’s proforma net debt/EBITDA as at end-FY2020 from 1.99 times to 2.03 times, based on our estimates.”
This acquisition should be acquired debt-free and based on its FY2020 underlying mobile EBITDA of A$11.4 million, the acquisition values amaysim at a historical FY2020 EV/EBITDA of 21.9 times.
“While this seems pricey, compared to regional peers, it has yet to take into account any potential synergies, which could include the rationalisation of amaysim’s staff, marketing/distribution and IT systems costs. Excluding synergies, we estimate the acquisition to be largely earnings-neutral for Optus, assuming the acquisition is fully debt-funded and interest cost is 3% (post-tax),” says Foong.
“Operationally, the acquisition will allow Optus to better engage amaysim’s subs (eg. via upselling) and more actively participate in the growing MVNO segment, in our view. The acquisition also removes the risk of amaysim potentially shifting to a new wholesale partner once its current agreement with Optus expires by Jun 2022,” adds Foong.
As at 3.25pm, shares in Singtel are trading at $2.17 or 1.2 times FY2021 book with a dividend yield of 3.6%.
