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Monday, June 13, 2005

Singpost @ 93.5 cents ( Postal / Singapore ) 17 comments



(P.S: Sorry for any disturbances the advertisements above may have caused you)

Main issues

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.

References:
(1) Singpost Results Presentation: FY2004

 

 

17 Comments:

Blogger Burton Hess said...

Daniel

I received your comment and would be happy to reciprocate links. I am going to post "Hot Singapore Stocks--Not!!" in the "sites for sore eyes" page at www.thesmartmoney.blogspot.com. Please add the www.smartmoney.blogspot.com to your page.

Thanks...bh

6/14/2005 1:20 PM  
Anonymous tankie said...

If there are investors who are happy with 1.5% FD, there'll definitely be investors happy with a 5% nett dividend. Singpost has it's cash cow, the mail part of the business, and like you mentioned, constant earnings over the last 5 years. This stability is good enough for many to have the stock as part of their portfolio.

In their zest to diversify, you now see many 'funny' businesses inside a Singpost shop and also their blunder into Accord. Still, it forms only a small portion of the total business and doesn't seriously affect the stable minimum 5cts dividend.

Also, I expect the management will be changed soon, due to the Accord blunder and replaced by equally capable people.

No, I don't have it in my portfolio. I was expecting it to drop to 0.8-0.85 or worse but like you, am very surprised by it's strong recovery!

6/14/2005 11:36 PM  
Blogger Anonymous said...

Great site. I look forward to reading more of your posts.
The TechTrader
techtrader.blogspot.com

6/15/2005 2:47 AM  
Blogger DanielXX said...

Hi tankie,
Even after the ACCS scandal I hardly can call the management crooked; however their top management were previously both bankers (Chairman and CEO) and I think this is why Singpost diversified into selling financial products. However the counter clerks at the post office are neither salesmen nor financially trained; how do you expect them to promote such stuff aggressively to the customers?

6/15/2005 7:49 AM  
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6/16/2005 9:41 PM  
Blogger Eddie said...

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6/21/2005 11:04 PM  
Anonymous SuperHOTtrader! said...

You're a JOKE!
Every stock you WARNED people about turned out to be the good BUYS!

SingPost: 0.935(warning), now 98cents

Cosco: 1.89 (warning), now 1.89..

Hyflux:3.88(warning), now $4.30

ACCS: 0.13 (warning), now 0.16

Unifiber: 0.31 (warning), now 0.40

Advanced: 0.60 (warning), now 0.65

Chartered:1.17 (warning), now 1.31

Pearl Energy : 1.09 (warning), now 1.60

HG Metal : 0.49 (warning), now 0.475

Wow, you're are damn NEGATIVELY ACCURATE!!! It is AMAZING! The stocks you asked people NOT to buy have spectacular returns AFTER you warned about them.

I've been trading full time for 18 years. I think you don't have a clue how to make money on the Singapore market or what moves the Singapore market!

6/23/2005 6:32 PM  
Blogger DanielXX said...

Well you are unfair in your observations. Surely I haven't got everything wrong? Look at the price performances that you listed again. And also remember that a rising tide lifts all boats.

I think the best way to look at this site is to see it as providing information on the downside/key risks of the stock. Too many sites offer buy calls and list the upside; I try to provide a different perspective to the (usually) high volume active stocks of the day.

6/23/2005 6:52 PM  
Blogger Stargate said...

Hi DanielXX,

I think that you are doing an excellent job here and that there are plenty of folks at the bull-fish forum who agree with you.

As I mentioned, I feel mighty suspicious of stocks that had such nice runs and while there may be genuine stars, others like CAO, ACCS (in Singapore) and Enron (US) are very good examples of why investors should be cautious.

Please carry on!

Stargate

6/25/2005 11:39 PM  
Blogger DanielXX said...

Thanks to stargate for your support. Have been posting more to my other blogs these few days; as and when I spot certain popular stocks which seem frothy I will post on this blog. But of course it's ad-hoc and my postings on this hot stocks not to buy site might be irregular sometimes depending on whether there happen to be any interesting ones to write about.

PS: Don't worry, I won't be easily deterred by negative comments.

6/26/2005 12:16 AM  
Anonymous Anonymous said...

How come most of the stocks you warn about perform far better than the general market?

7/05/2005 9:37 PM  
Blogger DanielXX said...

Anonymous,
If you notice the stocks I pick (not to buy), they are typically highly active stocks. My view is: what's the point of warning people against stocks that they're not going to buy anyway. For these "not-to-buy" stocks, I am warning of the stock valuation in relation to fundamentals. However sometimes the price momentum carries on. I am no chartist and short-term trading is not my specialty. Also, sometimes I have to admit I am dead wrong, such as Pearl (underestimated the power of oil). However, I think people can derive value from these comments over a longer period.

Read my comments but form your own opinions; that'll probably serve you best.

7/05/2005 10:10 PM  
Anonymous kk said...

The mgmt must be learning. Now they tie up with Prudential, with the latter providing the financial advisors.

Anyway, without any other revenue and profit stream, the current 5% net yield (at $1) is the only attraction. So, for those with this stock, better watch the bank interest rate closely. If int rate goes up, expect the share price to come down.

7/10/2005 10:45 PM  
Blogger Mike said...

Daniel,

you are doing a good job. Those who do not agree usually are from the brokering firms.

9/20/2005 7:34 AM  
Blogger 8percentpa said...

To Daniel, I like your analysis, to the point, clear observations.

To all the critics out there, the verdict is not out yet. Judging a stock call in a 3 mth, 6 mth or even 1 yr perspective is like guessing whether it will rain tomorrow. Nobody knows.

I think Daniel is trying to take a longer term view on stocks. i.e. 3-5 yr. Yes dynastys would have changed, you say, but that is investing.

Criticising rudely doesn't help.

10/01/2006 11:09 PM  
Blogger DanielXX said...

Hi 8percentpa,
Wow this is a long time ago! To be sure, including all the dividends issued by Singpost the stock would have done well for the conservative investor since my call. But well, given the general buoyant market it's probably not outperformed. Actually I typically look at a 6 mth - 1 yr investing horizon ie. the medium term. That's how I measure my calls. Thanks for your interest!

Cheers

10/02/2006 9:10 PM  
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2/04/2009 3:36 PM  

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