Mynt's Public Listing And GCash Expansion Will Strengthen Future Prospects

Key Takeaways

• Globe's ventures in fintech and data centers indicate strong future earnings and revenue growth potential through strategic expansion and optimized capital management.
  
• Focus on broadband and corporate data services promises revenue expansion by targeting underserved markets and enhancing digital solutions offerings.
  
• Inflation, natural disasters, and shifting telecom revenues challenge Globe's revenue stability and diversification, while improved cash flow still poses sustainability risks.

Catalysts

Provides telecommunications services to individual customers, small and medium-sized businesses, and corporate and enterprise clients in the Philippines.

• Globe Telecom's strong growth trajectory in its fintech venture, Mynt, led by the dominant cashless ecosystem GCash, reflects significant future earnings potential due to planned public listing and international expansion efforts. This is expected to substantially impact Globe's net income and earnings growth.
  
• The expansion of STT GDC Philippines, with projected IT capacity growth to 33 megawatts by 2025 and further to 52 megawatts by 2026, is likely to support increasing demand for data center capacity, enhancing revenue through diversified business operations and improved margins.
  
• Strategic shift from aggressive capital expenditure towards optimized network and capital utilization is expected to enhance cash flow efficiency. This reduction in cash CapEx and return to sustainable levels will improve Globe's free cash flow and provide financial flexibility to enhance earnings.
  
• Continued strong demand for Globe's GFiber Prepaid service indicates potential for future broadband revenue growth as the company targets underserved markets and pursues customer acquisition strategies. This focus on prepaid broadband is likely to support overall revenue and improve EBITDA margins.
  
• Growth in Globe's corporate data segment, driven by the increased adoption of ICT and cybersecurity services, indicates potential for robust revenue expansion. This aligns with the strategic focus on expanding digital solutions and increasing revenue contributions from higher-margin segments.

Globe Telecom Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Globe Telecom's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.7% today to 14.3% in 3 years time.
• Analysts expect earnings to reach ₱28.8 billion (and earnings per share of ₱192.49) by about April 2028, up from ₱22.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, up from 14.1x today. This future PE is greater than the current PE for the PH Wireless Telecom industry at 11.3x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.57%, as per the Simply Wall St company report.

Globe Telecom Future Earnings Per Share Growth

Risks

• Inflationary pressures and the impact of natural disasters, such as the typhoons in the latter half of 2024, have affected consumer spending, which could impact Globe's revenue and net margins.
  
• Mobile data revenues are growing, but this is offset by the decline in mobile voice and SMS segments, which shrank by 6% and 16% respectively, potentially affecting overall revenue stability.
  
• Although free cash flow improved, it remains negative if excluding proceeds from tower sales. This could pose a risk to long-term cash flow sustainability and debt reduction.
  
• Non-telco revenues fell by 12%, reflecting the deconsolidation of ECPay, which may indicate challenges in diversifying income sources beyond traditional telecom services.
  
• Competition in mobile and broadband markets, coupled with consumer spending limitations due to inflation, can pressure ARPU and subscriber growth, potentially impacting revenue and earnings.

Valuation

• The analysts have a consensus price target of ₱2606.0 for Globe Telecom based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₱2900.0, and the most bearish reporting a price target of just ₱2030.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₱201.0 billion, earnings will come to ₱28.8 billion, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 11.6%.
• Given the current share price of ₱2238.0, the analyst price target of ₱2606.0 is 14.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.