Singpost @ 93.5 cents ( Postal / Singapore ) 17 comments
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1.High PE given limited growth prospects
2.Unexciting total dividend payout given current price
It is strange that the ACCS episode, which Singpost managed to get itself involved in, did not have any impact on the company's share price as it recovered from the mid-eighties back towards an all-time high of 93.5 cents today. I really cannot see why.
Let's be clear. At 60 cents, which it was trading at in 2003, Singpost was a good buy since dividend yield approached 10% and it was effectively a monopoly locally with a strong and dependable cash flow. Now at >90 cents, it does seem fully valued.
The key valuation parameters: it is now trading at 16 times historical PE, and you can probably call that forward PE as well for reasons I'll explain soon. It is trading at more than 5 times its NTA of 17.4 cents. Its full-year dividend, having remained more or less similar over the last few years, is now only 5% of the stock price. And the revenue has been flat at ~$370M and net profit at ~$100M for the last 5 years (that explains why I can say forward PE roughly equals historical PE).
With this kind of historical growth record, does it deserve the valuation as mentioned above? Well you have the strong points as mentioned in the second paragraph, and the fact that it is considered a blue chip does vindicate its >15 times PE pricing. However, I cannot see it rising beyond that. I mean, SGX and SPH are also monopolies and they're around 15 times PE (excluding extraordinary gains); I certainly view their prospects more favourably given regional expansion plans that sound promising. I don't think Singpost has any investments that can be sold off periodically at great profits (Singtel seems to have lots of these) or great potential for property spinoffs (like SMRT in use of MRT land for retail).
Well they have the financial services (pawnbroking, unit trusts) they're trying to sell in their post offices, of course. Hardly promising going by personal and anecdotal experience. Postal mail have maintained an 80% share of revenue, while Logistics (Speedpost) constitute only about 14% but has promising growth of 20% according the latest results . So one naturally has to think in terms of the mail business: this main business is growing slowly. Unless Singpost can somehow get people to send more snail mails or raise its postage rates surreptitiously (is there some kind of Postage Authority deciding these rates??) I can't see how it can have significant long-term growth. And remember, now is the Age of Technology; who likes to send by snail mail if they can send by e-mail? Once online security gets better, then ......
One reason I can fathom with regards to the strong share price is that Singpost recently announced it is going to issue quarterly dividends. That probably woke some buy-and-hold dividend-seeking retirees up. Yet, note that management has stated that for the full year, they will pay "80-90% of net profits, or 5.0 cents, whichever is higher". The former is more or less equal to the latter, going by current numbers. But my point is this: does it matter when the investor gets the dividend, in separate quarters or in one shot at the end of the year, when it's the same amount he gets in the end??
And finally, don't even get me started on the conduct of management during the ACCS scandal.
(1) Singpost Results Presentation: FY2004