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Starhub at high growth rate

I bought my first Starhub share at $2.07 or so. Since then I have added and sold but largely I still have 4 lots at an average of $2.75.

I sold one lot at $3.61. And I thought its not a justifiable price.

Today it reached $4.20. Fundamentally, what does this signify?

Is it pricing in the 6.9 mil population for the next 17 years?

I will let you guys evaluate that.

Yield has compress from a 10% to 4.8%. The dividend payout have stayed roughly the same. While dividend payout is higher than earnings, it is sustainable and they been paying down cash.

But do note that the price of the share is the sum of future cash flow.

While we can use discounted cash flow to value, the result is rather subjective.

What is a good discount rate to use. I decide to set it to 7% since that is the rate we should demand for the risk of investing in Starhub instead of risk free assets.

We put in the current dividend of 20 cents per share. Note this is higher than the earnings per share.

So if $4.20 is the fair value, what would have been the growth rate?

Around 7.6%

That is roughly on the upper bound of the Singapore’s GDP growth rate. And Starhub would have to grow annualized that amount per annum.

Is it good value? I will let you guys decide. To me its growth rate usually is around 3%. 7% is really pushing it.

I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. Do follow my Dividend Stock Tracker which is updated nightly  here.

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K

Sunday 24th of February 2013

Can you explain how starhub can pay more dividend than earnings? Is it good business practice?

Drizzt

Monday 25th of February 2013

hi k, they can pay more dividend because the depreciation is higher than new capex. hence free cash flow is good to pay for the dividend, you can search up some of the past starhub articles along the lines of "Starhub enormous debt" to find out.

eventually, they would have to replenish the assets, but starhub may be the special case that capex to replenish is actually lower than last time.

hanz

Thursday 21st of February 2013

Hi, do u mind disclosing which stockbroker u use? cos i see the fees of u buying small lots is quite low.

Drizzt

Friday 22nd of February 2013

hi hanz, i use standard chartered bank trading. no minimum commissions

Dividends Warrior

Thursday 21st of February 2013

Hi Drizzt,

I think Starhub is really overbought now. My guess is that more and more investors are looking for yields.

Furthermore, they are willing to lower their yield expectations, thus the yield compression. But I think a 5% yield is the threshold, I dun think investors are willing to go for lower than 5% yield. In other words, I dun think the price will go above $4.30 anytime soon unless dividends are increased next year (which is unlikely).

Drizzt

Friday 22nd of February 2013

hi DW, they have been saying price not justifiable but markets can stay not rational for a long time.

James

Wednesday 20th of February 2013

StarHub's definitely overpriced now, I'll probably go for M1 which is lagging in price and has a yield of ~5% as well.

Just curious about the 7% discount rate you used. Risk-free assets have been traditionally the treasuries, and I don't think they are far from 7%. Are you using other risk-free assets as a benchmark?

Drizzt

Friday 22nd of February 2013

hi James, 7% looks risky and on hindsight i should use 5-6% but thats kinda low consider i demand at least 7% for the leverage and risk i am taking.

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