Exorbitant digital acquisitions to drag Singtel's performance in FY16

Trustwave is a key culprit.

Singtel's extensive digital acquisitions will lead to significantly higher capex and drag its performance in FY16, according to analysts.

DBS Vickers analyst Sachin Mittal stated that Singtel's $1.1b acquisition of Trustwave might act as a drag to the group's FY16 performance.

"[This acquisition] should add around $150-200m to the top line of Digital Life segment. The management expects the investment to be EBITDA positive in FY17F only. In addition, we believe the higher interest cost relating to the acquisition may drag the overall performance in FY16. Hence, our estimate for underlying profits in FY16 has been revised down [by around 1%] to S$3,988m,” Mittal noted.

Nidhi Dhruv, an Assistant Vice President and Analyst at Moody's, noted that the company has guided to higher accrual capex of $3b for FY16, including investments in a new data centre in Singapore, enhancement of 4G data coverage in Australia and a new unified billing and customer care system.

"The increased capex, coupled with the acquisition cost of approximately USD810 million for Trustwave and expected further investments in the Digital Life business, should keep Singtel's leverage -- as measured by adjusted net debt/EBITDA -- at the higher end of our tolerance for the
rating at 1.75-1.80x over the next 1-2 years," said Dhruv.

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