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For long term investors, improvement in profitability and outperformance against the industry can be important characteristics in a stock. In this article, I will take a look at Singapore Telecommunications Limited’s (SGX:Z74) track record on a high level, to give you some insight into how the company has been performing against its historical trend and its industry peers.
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How Well Did Z74 Perform?
Z74’s trailing twelve-month earnings (from 31 March 2018) of S$5.45b has jumped 41.50% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 4.15%, indicating the rate at which Z74 is growing has accelerated. What’s enabled this growth? Let’s see if it is merely a result of industry tailwinds, or if Singapore Telecommunications has experienced some company-specific growth.
In the last couple of years, Singapore Telecommunications expanded bottom-line, while its top-line declined, by efficiently controlling its costs. This resulted in to a margin expansion and profitability over time. Inspecting growth from a sector-level, the SG telecom industry has been growing its average earnings by double-digit 13.17% in the past year, and a more subdued 6.62% over the last five years. Since the sector in is relatively small, I’ve included similar companies in the wider region in order to get a better idea of the growth, which is a median of profitable companies of companies such as , and . This means any tailwind the industry is gaining from, Singapore Telecommunications is able to amplify this to its advantage.
In terms of returns from investment, Singapore Telecommunications has not invested its equity funds well, leading to a 18.31% return on equity (ROE), below the sensible minimum of 20%. However, its return on assets (ROA) of 11.95% exceeds the SG Telecom industry of 6.66%, indicating Singapore Telecommunications has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Singapore Telecommunications’s debt level, has declined over the past 3 years from 12.24% to 10.48%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 33.03% to 35.17% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Singapore Telecommunications gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. You should continue to research Singapore Telecommunications to get a more holistic view of the stock by looking at: