SingTel: Focus On What's Really Important
When SingTel announces its earnings Wednesday morning, much of the focus will be on its regional associates. These are companies which SingTel bought into, but which it in most cases does not own fully. The subscriber numbers these associates report are certainly impressive, but they are by no means the only things SingTel shareholders ought to be interested in. There are two other major points which rarely get a hearing at the earnings briefing.
According to numbers announced today, SingTel's proportionate subscriber base stands at 56.87 million. The aggregate number, which assumes SingTel counts each and every subscriber, even though it doesn't fully own its various associates, is almost 158 mln. This certainly sounds impressive. But how much are these subscribers actually spending on their monthly phone bills? This is of particular importance, given that 19 out of 20 new subscribers added during the second quarter are pre-paid customers, who top up their SIM card when they run low on credits. It may surprise you, but the majority of phone users in Singapore are pre-paid users. These users tend to spend a lot less than if you are a post-paid subscriber (meaning, you receive a monthly bill). The Average Revenue Per User (ARPU) is critical not just to understand how many subscribers SingTel has, but how much money SingTel actually gets from them. The answer is: not very much.
The second critical point about SingTel's earnings is 3G take-up. The statement with the subscriber numbers was telling: "868,000 subscribers had been provisioned with 3G services…". A very strange way to phrase it, but a very accurate one: provisioned means, subscribers have access to 3G services. It does not mean they actually used them. This is also important, given that these services were supposed to pick up from falling voice revenue. We'll probably get to see some numbers which point to the percentage of data revenue, but little said about what will drive 3G service usage in the future other than some general statements about the fact that the marketing department is still looking for the killer app.
All this is not to say that subscriber numbers aren't important. But I'd rather SingTel have one-tenth the subscriber numbers (and therefore lower costs) who spend 10 times as much (and therefore drive profitability and cashflow). So, finding these points of information that don't make the headline is a more interesting exercise than reading the headline grabbers.
Mark Laudi
Disclosure: Investor Central content can be accessed through the mobile portals of all three telcos. SingTel users can use their WAP browsers to go to http://ideas.singtel.com.sg > News & Finance > Finance > Financial News > Investor Central
According to numbers announced today, SingTel's proportionate subscriber base stands at 56.87 million. The aggregate number, which assumes SingTel counts each and every subscriber, even though it doesn't fully own its various associates, is almost 158 mln. This certainly sounds impressive. But how much are these subscribers actually spending on their monthly phone bills? This is of particular importance, given that 19 out of 20 new subscribers added during the second quarter are pre-paid customers, who top up their SIM card when they run low on credits. It may surprise you, but the majority of phone users in Singapore are pre-paid users. These users tend to spend a lot less than if you are a post-paid subscriber (meaning, you receive a monthly bill). The Average Revenue Per User (ARPU) is critical not just to understand how many subscribers SingTel has, but how much money SingTel actually gets from them. The answer is: not very much.
The second critical point about SingTel's earnings is 3G take-up. The statement with the subscriber numbers was telling: "868,000 subscribers had been provisioned with 3G services…". A very strange way to phrase it, but a very accurate one: provisioned means, subscribers have access to 3G services. It does not mean they actually used them. This is also important, given that these services were supposed to pick up from falling voice revenue. We'll probably get to see some numbers which point to the percentage of data revenue, but little said about what will drive 3G service usage in the future other than some general statements about the fact that the marketing department is still looking for the killer app.
All this is not to say that subscriber numbers aren't important. But I'd rather SingTel have one-tenth the subscriber numbers (and therefore lower costs) who spend 10 times as much (and therefore drive profitability and cashflow). So, finding these points of information that don't make the headline is a more interesting exercise than reading the headline grabbers.
Mark Laudi
Disclosure: Investor Central content can be accessed through the mobile portals of all three telcos. SingTel users can use their WAP browsers to go to http://ideas.singtel.com.sg > News & Finance > Finance > Financial News > Investor Central
Labels: ARPU, Chua Sok Koong, Earnings, postpaid, prepaid, Singapore Telecom, SingTel
Make Free Cashflow Reporting Mandatory
Investors following earnings season can be forgiven for being bewildered by the numbers companies throw at them. For the uninitiated, reading the Profit & Loss Accounts, the Cashflow Statement and the Balance Sheet is quite a task. The irony is that even accountants admit much of it is based on assumptions and opinions. But while all companies provide a cashflow statement, few companies actually report Free Cashflow. We think it should be mandatory.
Free cashflow (FCF) is the ultimate measure of a company's financial health because it measures how much cash the business is actually generating, after staff and all their bills have been paid and money has been reinvested into the business, in the form of new equipment, and so on. It is the money the company does not know what to do with. It shows how much money the company could potentially pay out to shareholders.
Unfortunately, not many companies report it. StarHub is one of the few. It reported earnings last night, and the number appeared on page 2 of their earnings statement. While investors can work the figure out themselves, it would be better hearing it from the companies themselves.
That's not to dismiss profit altogether. For example, it is still interesting to know that, for example, the revaluation of a property boosted profit. Presumably, this property could be borrowed against, or sold. These would bring physical cash into the company. But the problem is there are many measures of profit (Gross Profit, Profit Before/After Tax, Abnormals, and so on). Which one should investors look at? By contrast, there is only one Free Cashflow number. It cannot be massaged by property revaluations and other abnormal items.
I can understand that some companies – especially those which don't generate any free cashflow – would be reluctant. But hiding poor cash generating ability behind great paper profits doesn't really address the spirit of continuous disclosure obligations, even though it meets the letter of it. Making Free Cashflow part of the mandatory continuous disclosure obligations would ensure that investors understand straight away whether a company is worth investing in or not.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Free cashflow (FCF) is the ultimate measure of a company's financial health because it measures how much cash the business is actually generating, after staff and all their bills have been paid and money has been reinvested into the business, in the form of new equipment, and so on. It is the money the company does not know what to do with. It shows how much money the company could potentially pay out to shareholders.
Unfortunately, not many companies report it. StarHub is one of the few. It reported earnings last night, and the number appeared on page 2 of their earnings statement. While investors can work the figure out themselves, it would be better hearing it from the companies themselves.
That's not to dismiss profit altogether. For example, it is still interesting to know that, for example, the revaluation of a property boosted profit. Presumably, this property could be borrowed against, or sold. These would bring physical cash into the company. But the problem is there are many measures of profit (Gross Profit, Profit Before/After Tax, Abnormals, and so on). Which one should investors look at? By contrast, there is only one Free Cashflow number. It cannot be massaged by property revaluations and other abnormal items.
I can understand that some companies – especially those which don't generate any free cashflow – would be reluctant. But hiding poor cash generating ability behind great paper profits doesn't really address the spirit of continuous disclosure obligations, even though it meets the letter of it. Making Free Cashflow part of the mandatory continuous disclosure obligations would ensure that investors understand straight away whether a company is worth investing in or not.
Mark Laudi
To comment on this blog, visit the Investor Central Blog.
Labels: Earnings, Free cashflow, net profit, StarHub
Open note to SQ: Sell the Virgin stake NOW while you can!
Virgin Atlantic, 49% owned by Singapore Airlines, reported rather lackluster earnings the other day dragged down by Virgin Nigeria's performance. Higher fuel costs (particularly now and on the horizon), Virgin Nigeria operating in a tough environment, and open skies coming into force in early 2008 across the Atlantic, and the conditions seem ripe to me for Singapore Airlines to do what it should have done a while ago: sell the 49% stake back to Sir Richard and co.
Here are some of the highlights of Virgin's performance for the quarter:
-Profit down from £60.3 mln to £6.6 mln
-Revenue was up 16% to £2.2 bln
-Passenger numbers up from 4.8 mln to 5.3 mln
Virgin Nigeria was one of the main reasons earnings got dragged lower. When you think about it, that airline already operates in an extremely tough market to begin with. Finding success for them is something that could take a while, that is, if success ever comes their way.
Taking into consideration that open skies across the Atlantic will soon come into force and suddenly the market operating environment for Virgin Atlantic becomes a lot tougher on their bread and butter routes. A number of airlines that had previously not held route authority to Heathrow airport have already stated their intention to fly into what has been one of Virgin Atlantic's traditional hubs (over London's Gatwick airport). Granted the transatlantic market between London and the United States is the largest of them all, competition however will become much fiercer and cut throat as airlines work to undercut each-others market share on routes.
Energy costs continue to rise, particularly for jet fuel. Singapore Airlines hiked its fuel surcharge again recently, and crude prices also continue to trade in the $70 range.
With all these conditions, the time is now for SQ to sell their stake in my opinion, before the earnings picture gets even uglier than this.
Curtis Bergh
ArchivesHere are some of the highlights of Virgin's performance for the quarter:
-Profit down from £60.3 mln to £6.6 mln
-Revenue was up 16% to £2.2 bln
-Passenger numbers up from 4.8 mln to 5.3 mln
Virgin Nigeria was one of the main reasons earnings got dragged lower. When you think about it, that airline already operates in an extremely tough market to begin with. Finding success for them is something that could take a while, that is, if success ever comes their way.
Taking into consideration that open skies across the Atlantic will soon come into force and suddenly the market operating environment for Virgin Atlantic becomes a lot tougher on their bread and butter routes. A number of airlines that had previously not held route authority to Heathrow airport have already stated their intention to fly into what has been one of Virgin Atlantic's traditional hubs (over London's Gatwick airport). Granted the transatlantic market between London and the United States is the largest of them all, competition however will become much fiercer and cut throat as airlines work to undercut each-others market share on routes.
Energy costs continue to rise, particularly for jet fuel. Singapore Airlines hiked its fuel surcharge again recently, and crude prices also continue to trade in the $70 range.
With all these conditions, the time is now for SQ to sell their stake in my opinion, before the earnings picture gets even uglier than this.
Curtis Bergh
Labels: Earnings, Singapore Airlines, Virgin Atlantic
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