What’s behind Singtel’s extremely sharp share price drop?

Shares have dropped over 20% since July.

Singtel shareholders have witnessed a painful drop in the company’s value in the recent weeks, with the counter losing over 20% of its market capitalisation in just two months.

Although some unitholders might be tempted to do away with Singtel shares altogether, analysts from Jefferies believe that there is still a reason to stick with this cheap stock.

“SingTel's 20% drop since July 2015 is driven less by changes in the fundamental outlook than macro concerns like 1) rise in SG interest rates reducing appetite for yield stocks, 2) fall in AUDSGD dragging down Optus earnings,” Jefferies said in a recent report.

The report noted that dividend yield has now risen above 5%, which is at the high end of Singtel’s historical trading range.

“SingTel's yields are the top end of its 4-5% range over this 2008-15 cycle. Compared to other yield plays like REITs, Singtel is not exposed to any asset price risks. Also, we believe that Singtel has substantial scope to increase its FCFs over the long run,” said the report.