Is there any cause for concern for investors to cut loss? Will there be a dividend cut? I would like to share my take on SPH’s fundamentals and outlook.
Basically, SPH unexpected loss came from its investment portfolio. It has a marked to market (MTM) loss of $34M. Though I might be wrong, I do not believe the paper loss on its funds will directly result in a reduced dividend payout. For instance, my cash flow (salary) per month is $4000. After accounting for MTM losses in my investment portfolio, I am losing $8000 per month.However, I still have $4000 to pay myself, parents, bills and other expenses. I do not need to fork out $4000 to pay my investment loss.
Similarly, SPH do not have to realise its investment loss, unless they are borrowed funds. Records show that it has a $1B investment portfolio.
Paper loss (MTM) and free cash flow are not to be read under the same light. This explains the increased of cash at bank from $30M to $43M and fixed deposits from $180M to $397M, QoQ. There is an increase of $60M in cash and cash equivalents, YOY. (Part of it should come from the $150M loan capital.)
The Q1 result was a reflection of September to November 2008 financial results, when Lehman brothers collapsed and AIG was nationalized. Investment gains were at the ebb in this period. SPH Q2 results will likely to fare much better.
Historically, SPH pays its dividends from its recurring profits, (which is up 1% or $127.8M) and not from its investment portfolio.
That said, SPH 35% decline profits for Q1 has resulted its share’s price to drop 35% from $4.40 (conservative fair value) to $2.85. I estimate SPH to declare a minimum of 20 cents dividends in 2009 (6 cents in 1H 09, 14 cents in FY 09). The yield is a healthy 7%.
I will not be selling my stake in SPH as it would yield me more than 4.5% at my purchase price. Market would definitely recover eventually. Hence, I will continue adopting my passive stance on my portfolio.
I expect more bad news streaming in. Just read online that Ezra’s 1Q 09 profits have fallen over 90% to US$ 9M. Superbowl has warned of 2008 full year loss.
More bloodshed ahead.