Every year during this time, I would take the time to review SPH full year results to see how they were doing. Last year in Oct (See Here), I was disappointed with their results and was contemplating whether to hold or let go of this darling grandfather stock. Anyway, I managed to hold to them eventually and have well "eaten" their normal, final and special dividend despite the not so satisfied results.
Today, I made the decision again to review SPH recently announced full year results and decided to let go my 5 lots at a price of $4.23, not too bad I think given the range they have been in the past 5 years or so (will talk it more detail in conclusion).
My decision to divest the company has been based on figures which have been disappointing and not too satisfactory for me.
If we take a look at the top line and operating profit figure, specifically for Newspaper and magazine, the drop on revenue year on year has been pretty bad at around 6%. Operating profit has dropped at around 16%. Taking a closer look, the fall in circulation can somewhat be offset by the increase in the property and other segments. However, the drop is advertising revenue is massive and hits hard for them.
 |
| Revenues and Operating Profits |
Looking back over the past 2 years at least now, the decline in print and advertising on offline have been a secular trend given the high internet penetration of the young people these days. Sources of advertising revenue such as Classifieds have been on free fall and is evident in their latest results.
Some people have mentioned whether the property segments will come and rescue the core business, especially given the hype that Seletar mall will begin operations in Nov 2014. Using my calculated estimated capitalization rate of 4.85% (See Link Here) over its latest valuation of $493 million, we get an NPI of around $24 million/year. Having an ownership of 70%, this will translate to around $16.7 million/year for additional income. Being a conglomerate, $16.7 million will not impact their earnings by much, given that their loss in advertising revenue alone is over $50 million. We have not even taken into account some other expenses and considerations and the revaluation gain/loss.
The company has declared a final dividend of 14 cents/share, making the total to 21 cents, a 1 cent drop from previous year. You can see that the company is floating right now with their cash flow, given that their latest payout has now exceeded to 107.8%. I seriously doubt they will be able to increase their payout anytime soon.
The key here is that the company is trying to transform their business into the digital platform, having more online than offline, tapping on the digital space, integrated content and online advertising. I think it will take some time for the strategy to play out but will good for the business over time.
Conclusion
This is a counter that somehow people loves most despite their results. If we take a look at the price range over the past couple of years, it has always range somewhere between $3.80 (after xd) to $4.30 (before xd). Last year they went to as high as $4.60 because of the hype regarding the listing of the SPH Reit and the special one-off dividend. Over the next year, they should be at least maintaining their total of 21 cents/share dividends. If you are satisfied with the 6% yield, this counter should be fine. But given the current market volatility, maybe there are more opportunities to cash in on the proceeds from selling this counter, at least for me.
