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05-06-2021, 11:17 AM
Hi Tanjm
You are right that it is based on industry average.
This is not exactly based on the Netlink WACC, but in 2000, IMDA did outline how they calculated WACC for Singtel and it was based on industry average.
https://www.imda.gov.sg/news-and-events/...1120093400
Relevant portion on WACC in quotes
"In calculating the WACC, a capital structure appropriate for a basic services company operating in Singapore has been used; this may differ from the actual capital structure of each of the two companies. The actual capital structure may reflect factors other than those applicable to the basic services business in Singapore.
The appropriate capital structure that minimises WACC is a function of market requirements and is best estimated by what capital markets require for similar types of companies. It is not possible to directly determine what capital markets require; however, it is likely that actual capital structures will tend to reflect those requirements. As a result, an average of actual capital structures for selected telecommunications companies was used to estimate the appropriate capital structure with appropriate adjustments for each company to reflect their circumstances."
Hi Blackcat,
What that means is that if you look at Telco Infrastructure assets and average their capital structure, you will get the WACC. Having said that, since the proxy method of say 4.9 to 5.7 which you have derived and the 5.4 which DBS seems to have derived are not too far off, you could use that range rather than spend more time in calculating WACC.
For what it is worth, I think the market may be blase about the pricing review and focused on the yield.
However, that may or may not create a shock i.e. if the review is that WACC does not drop much and the dividend is maintained the price may actually increase due to certainty, hell breaks loose in varying levels if dividend is cut (depending on the cut), hard to predict the outcome or even estimate probability for each potential outcome, in a way, too difficult (at least for me) to think of a way to invest on this.
You are right that it is based on industry average.
This is not exactly based on the Netlink WACC, but in 2000, IMDA did outline how they calculated WACC for Singtel and it was based on industry average.
https://www.imda.gov.sg/news-and-events/...1120093400
Relevant portion on WACC in quotes
"In calculating the WACC, a capital structure appropriate for a basic services company operating in Singapore has been used; this may differ from the actual capital structure of each of the two companies. The actual capital structure may reflect factors other than those applicable to the basic services business in Singapore.
The appropriate capital structure that minimises WACC is a function of market requirements and is best estimated by what capital markets require for similar types of companies. It is not possible to directly determine what capital markets require; however, it is likely that actual capital structures will tend to reflect those requirements. As a result, an average of actual capital structures for selected telecommunications companies was used to estimate the appropriate capital structure with appropriate adjustments for each company to reflect their circumstances."
Hi Blackcat,
What that means is that if you look at Telco Infrastructure assets and average their capital structure, you will get the WACC. Having said that, since the proxy method of say 4.9 to 5.7 which you have derived and the 5.4 which DBS seems to have derived are not too far off, you could use that range rather than spend more time in calculating WACC.
For what it is worth, I think the market may be blase about the pricing review and focused on the yield.
However, that may or may not create a shock i.e. if the review is that WACC does not drop much and the dividend is maintained the price may actually increase due to certainty, hell breaks loose in varying levels if dividend is cut (depending on the cut), hard to predict the outcome or even estimate probability for each potential outcome, in a way, too difficult (at least for me) to think of a way to invest on this.
Disclaimer :-
I am not an investment professional.
I encourage you to do your own independent "due diligence" on any idea that I write about, because I could be and probably am wrong.
Nothing written here is an invitation to buy or sell any particular stock.
At most, I am handing out an educated guess as to what the markets may do.
The market will always find a new way to make a fool out of me (and maybe, even you!).
Even the best strategies of the past fail, sometimes spectacularly, when you least expect it.
I am not immune to that, so please understand that any past success of mine will probably be followed by failures
I am not an investment professional.
I encourage you to do your own independent "due diligence" on any idea that I write about, because I could be and probably am wrong.
Nothing written here is an invitation to buy or sell any particular stock.
At most, I am handing out an educated guess as to what the markets may do.
The market will always find a new way to make a fool out of me (and maybe, even you!).
Even the best strategies of the past fail, sometimes spectacularly, when you least expect it.
I am not immune to that, so please understand that any past success of mine will probably be followed by failures