A solid and resilient business trust that I did not add nor sell since IPO

Before the IPO of NetLink NBN Trust in Jul 2017, there was a bookmaking process in which institutional firms are allocated shares before the general tranche was offered to the public. My broker from UOB KH emailed and asked clients to bid for it.

A summary of the prospectus lodged in Jun 2017 attracted my attention.

·         Critical infrastructure enabling Singapore’s Next Gen NBN
·         Resilient business model with transparent, predictable and regulated revenue stream
·         Sole nationwide provider of residential fibre network in Singapore, an attractive market with high demand for fibre broadband services
·         Well positioned to benefit from growth in the non-residential segment as the independent nationwide network provider
·         Well positioned to capitalise on growth in connected services including Singapore’s Smart Nation initiatives
·         Extensive nationwide network affording natural barrier to entry
·         Highly scalable operations and credit strength support unitholder returns
·         Experienced management team with proven track record

SYNDICATE:
·         Joint Global Coordinators and Issue Managers: DBS, Morgan Stanley and UBS
·         Joint Bookrunners and Underwriters: DBS, Morgan Stanley, UBS, BAML, Citi, HSBC, OCBC and UOB

OFFERING PRICE RANGE: S$0.80 – S$0.93 per Unit

BASE OFFERING SIZE OF 2,898,000,001 units (appx $2,318.4m to $2,695.1m):

·         Public offer of up to [S$250m]
·         Over-allotment option (OA) of up to approx. S$100m: approx. 107.5m units to 125m units

TOTAL UNITS OUTSTANDING, POST OFFERING (ASSUME FULL OA OPTION EXERCISED): 3,971.5m units to 3,989m units

FORECAST DISTRIBUTION YIELD
·         FP2018E: 4.73% to 5.50% (annualized);
·         FY2019E: 4.99% to 5.80%
All distributions are exempt from Singapore tax for all investors

Lured by the prospect of owning a monopoly business spinoff from Singtel, riding on the waves of digital transformation era, I gladly submitted my bid offer.

In the end, the IPO price was at the lower end of $0.81 and I was abit disappointed to pay the higher brokerage fees of more than $40 to get the guaranteed shares of a monopoly business instead of $2 admin fee at the ATM.

For a period of time after IPO, this counter is a lacklustre laggard. Falling below the IPO price and trading sideways mostly. Then after more big boys initiated coverage of it, the share price began to climb steadily.

Fast forward 3 years, after collecting a few rounds of dividends, my net cost per share of NetLink Trust is only $0.71. This is not taking into account the coming dividend of 2.53 cents which is just announced today. Its market share price is 1 today.

In its Q4 FY20 results, revenue increased by 5.2% to $92.4m. EBITDA dropped 48.1% due to writing off a $15.4m project cost of a discontinued IT system. Nonetheless, its revenue and EBITDA for FY20 still increase by 4.7% and 4.3%. Most importantly, DPU increase 3.5% YoY to 5.05cents at a share price of $1 today yielding 5.05%.

Operating cashflow increased from $229.6m in FY18 to $262.5m FY19. With a total outstanding shares of 3.9B, there is sufficient to cover the $197m for dividends of $0.0505 per share. I believe that the dividends are sustainable at least for the near future.

I am happy to hold on to my shares since IPO at net cost of $0.71, yielding 7%. However, I would not want to pay more than $0.90 for a yield of below 5.5% as there are more interesting Reits and banks that yield higher.

Thanks for reading!

Love and peace,
Qiongster