SINGTEL&rsquo S wholly-owned subsidiary Singtel Enterprise Security (US) has agreed to sell all its equity interest in its Chicago-based cybersecurity arm, Trustwave, for an enterprise value of US$205 million, comprising a secured note and cash.

 

The buyer is MC2 Titanium, a growth equity fund founded by the executive leadership team of advisory firm The Chertoff Group.

 

On Monday (Oct 2), Singtel said the divestment is not expected to have a material impact on the group for the financial year ending Mar 31, 2024.

 

Following the sale, Trustwave will be reclassified as a subsidiary held for sale as at Sep 30, 2023, and will be deconsolidated from the group&rsquo s financials.

 

The transaction is expected to be completed by Q4 2023, and is subject to regulatory approvals and customary closing conditions.

 

Singtel&rsquo s announcement follows the completion of a strategic review of Trustwave, which concluded in September 2023.

 

It confirms earlier reports that the group was moving forward with its planned divestment of its cybersecurity arm.

 

An August 2022 article by Bloomberg said the deal could fetch US$200 million to US$300 million, citing people familiar with the matter.

 

At the time, sources told Bloomberg that considerations were preliminary, though Singtel had been speaking with financial advisers on Trustwave&rsquo s potential divestment.

 

Trustwave, which provides cybersecurity services in the US, comes under Singtel&rsquo s group enterprise segment.

 

In 2015, Singtel completed its acquisition of its 98 per cent interest in Trustwave for US$770 million after accounting for working capital adjustments. This was lower than the initial US$810 million price tag, when the deal was first announced earlier in the year.

 

Based on Singtel&rsquo s latest financial statements for the full year ended Mar 31, 2023, Trustwave contributed operating revenue of S$163 million &ndash representing a 55.7 per cent decline from S$368 million in FY2022.

 

Its loss before interest, taxes, depreciation and amortisation (Lbitda) for the period was relatively unchanged at S$116 million.

 

Trustwave&rsquo s FY2023 loss before interest and taxes (Lbit) before associates&rsquo contributions stood at a narrower S$133 million, compared with S$145 million the previous year. 

 

These figures were consolidated based on statutory accounts, which included revenue earned as a vendor to other entities in Singtel.

 

Trustwave&rsquo s Lbitda for the first quarter ended June 2023 was S$25 million, as opposed to S$29 million in Q1 FY2022. Its Lbit before associates&rsquo contributions stood at S$29 million, compared with S$33 million the previous year.

Singtel began a strategic review of its stake in Trustwave in 2021 after buying it for US$770 million in 2015. 

BENGALURU - Singapore Telecommunications on Monday said it entered into an agreement with MC2 Titanium, LLC to sell its stake in cyber security business Trustwave for US$205 million (S$280.2 million).

 

South-east Asia&rsquo s largest telecom firm began a strategic review of its 98 per cent interest in Trustwave in 2021 after buying it for US$770 million in 2015.

 

The divestment comes after Singtel incurred an impairment charge of $336 million on Trustwave in the second half of 2021.

 

The divestment is expected to be completed by the fourth quarter and will not have a material impact on the group for fiscal 2024, the company said in a statement.

 

Last month, Singtel announced it will sell a 20 per cent stake in its regional data-centre business to US private equity giant KKR & Co for up to $1.1 billion. 

Singtel began a strategic review of its stake in Trustwave in 2021 after buying it for US$770 million in 2015. 

BENGALURU - Singapore Telecommunications on Monday said it entered into an agreement with MC2 Titanium, LLC to sell its stake in cyber security business Trustwave for US$205 million (S$280.2 million).

 

South-east Asia&rsquo s largest telecom firm began a strategic review of its 98 per cent interest in Trustwave in 2021 after buying it for US$770 million in 2015.

 

The divestment comes after Singtel incurred an impairment charge of $336 million on Trustwave in the second half of 2021.

 

The divestment is expected to be completed by the fourth quarter and will not have a material impact on the group for fiscal 2024, the company said in a statement.

 

Last month, Singtel announced it will sell a 20 per cent stake in its regional data-centre business to US private equity giant KKR & Co for up to $1.1 billion. 

 

The increase in public transport fares from December onwards is not likely to make a significant impact on ComfortDelGro&rsquo s (CDG) C52 0.78% earnings for the FY2024 ending December 2024, say the analysts from CGS-CIMB Research and PhillipCapital.

 

The public transport operator has a 75% stake in SBS Transit S61 0.00% , which is Singapore&rsquo s largest scheduled public bus operator. SBS Transit also operates several train lines such as the North East Line (NEL) and the Downtown Line (DTL), as well as the Sengkang and Punggol LRTs.

 

On Sept 18, the Public Transport Council announced that it has allowed a 7% increase in public transport fares, following the annual fare review exercise. From December onwards, adult fares are expected to increase by 10 cents for up to 4.2km and 11 cents for distances beyond that. The hike is the highest increase recorded since and is the first exercise after the council adjusted its fare formula in April to factor in inflation and changing consumer patterns.

 

CGS-CIMB&rsquo s analyst Ong Khang Chuen remains neutral on the fare hike as the mechanism &ldquo essentially functions to allow SBS Transit [and] CDG to pass on the higher costs albeit at a lagged basis&rdquo , he tells The Edge Singapore.

 

While the higher fares could lift CDG&rsquo s revenue, the impact on its bottom line will be more muted as the cost base &mdash fuel and manpower &mdash will continue to grow in tandem in 2024, he adds.

 

That said, the recovery of SBS&rsquo s rail ridership should contribute positively to CDG&rsquo s overall figures. The segment is also likely to achieve profitability by 2HFY2023, notes Ong.

 

Thanks to the overall earnings growth, there is room for CDG to pay out higher dividends per share (DPS) in FY2024, says Ong, who has kept his &ldquo add&rdquo call and target price unchanged at $1.47.

 

PhillipCapital&rsquo s analyst Paul Chew, while similarly positive on the move, also sees a limited direct impact on CDG&rsquo s bottom line following the fare hike. The hike is to reflect the higher costs for electricity fees and wages and is not meant to increase margins for CDG and SBS, says Chew. &ldquo For buses, the company is paid on a fixed fee per kilometre, with cost pass through,&rdquo he tells The Edge Singapore.

 

Instead, the upside for CDG in FY2024 is expected to come from its UK bus operations, thanks to the higher operating fees it can collect. Higher margins from its taxi business and higher volumes from its rail operations could also help raise dividends for FY2024, reasons Chew, who is keeping his &ldquo buy&rdquo call and $1.57 target price for now.

 

DBS and Maybank more bullish on CDG&rsquo s prospects

 

Meanwhile, the team at DBS Group Research and Maybank Securities&rsquo analyst Eric Ong are more bullish about CDG&rsquo s prospects, with DBS noting that the 7% fare hike is higher than their expectations of a 3% hike in FY2024.

 

With the hikes, both DBS and Maybank&rsquo s Ong estimate that SBS is likely to see a $20.9 million increase in its annual revenue. Of that sum, the company will have to contribute 15% of the expected increase towards the public transport fund. &ldquo We estimate that SBS will see a bottom line improvement of $14.7 million, which will translate to $11 million at CDG level [with] all else constant,&rdquo writes the DBS team.

 

With all things equal, Ong also sees CDG reaping an additional contribution of $11 million or over 5% to the group&rsquo s overall earnings in FY2024.

 

In its Sept 19 update, DBS believes that the hike will allow SBS&rsquo s train systems to achieve profitability in FY2024, especially considering that its average daily rail ridership for August reached its pre-Covid-19 levels. The higher number of rail riders should &ldquo allay [the] market&rsquo s scepticism that ridership will not return to pre-Covid due to work-from-home phenomenon,&rdquo says DBS.

 

DBS notes that the previous fare hike for 2023 was just 2.9%, significantly below the maximum allowable quantum of 13.5%. &ldquo This was likely to tame high inflation and weak economy expected in 2023, which turned out as expected. For 2024, a significantly higher allowable fare hike of 7% is likely a signal of the government&rsquo s outlook of easing inflation and improved economic conditions such that commuters are better positioned to absorb the higher fare increases,&rdquo DBS surmises.

 

Overall, the DBS team sees that the fare hike is a &ldquo positive development&rdquo as it allows CDG to reduce its reliance on support from the government. The move also signals a &ldquo path to higher margins with further high fare hikes in the cards should the economy remain sound&rdquo .

 

Maybank&rsquo s Ong sees that the hike will have a &ldquo slightly positive impact&rdquo on CDG&rsquo s share price. The larger-than-expected hike itself could &ldquo potentially continue with the Public Transport Council again deferring a bulk (remaining 15.6%) of the fare adjustment quantum to future fare review exercises,&rdquo he says.

 

However, in spite of the fare hike, SBS&rsquo s trains will continue to face inflationary pressure from a tight labour market and higher energy prices in the near-term.

 

On dividends, Ong sees CDG maintaining its payout ratio of 70% to 80% of its patmi in FY2024.

 

DBS has kept its &ldquo buy&rdquo call with an unchanged target price of $1.65, which is the highest among its peers so far.

 

Ong has also kept its &ldquo buy&rdquo call with an unchanged target price of $1.50.

 

RHB increases TP to $1.46

 

RHB Bank Singapore&rsquo s analyst Shekhar Jaiswal has kept his &ldquo buy&rdquo call with a higher target price of $1.46 from $1.40 previously.

 

&ldquo The 7% fare increase and additional subsidy support from the government should enable SBS Transit to cover the rise in operating costs and help report a slightly better profit in FY2024. This should boost CDG&rsquo s FY2024 - FY2025 profit by 3%,&rdquo he writes.

 

As it is, SBS&rsquo s rail business has already reversed from its $51 million loss in FY2021 to a small profit of $1.2 million in the 1HFY2023 largely on the back of &ldquo rapid improvements&rdquo in its ridership, the analyst notes.

 

Year-to-date (ytd), Jaiswal points out that SBS&rsquo s rail ridership is now only 4% below its pre-Covid-19 level, offering limited upside to ridership levels in 2024.

 

Overall, the analyst maintains that CDG should report continuing improvement in profit thanks to higher overseas public transport earnings, marginally higher rail ridership in Singapore and better taxi earnings.

 

&ldquo Its strong yield should also provide good support for its share price,&rdquo he writes.