Wednesday, January 14, 2009

SPH Q1 results

SPH reported a 35% drop in 1Q net profits this week. Its share price started to price in the news 1 week prior to its results release and have been a downward trend ever since.

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.

8 comments:

maart said...

what is the estimate recovery time frame from your perspective. am holding some SPH shares and the dipping prices are certainly disturbing.

Would you recommend to buy more units to leverage?

Sgbluechip said...

I believe 2 years should be enough for all dust to settle down. My time horizon is 10 years and above, so no worries for me. I wouldn't sell it if its $4 tmr or $2 today.

Buy more SPH if you are confident of its biz fundamentals.

Alvan said...

what price support do u think sph will bottom around? i know its an age old qn with no answer but just wanna hear your thoughts

Alvan said...

hi sgbluechips, wat do you think of citi stock now that it went back to 3 dollar range?

JW said...

and my dad tells me he bought 5 lots of SPH at current price :(

It's really disturbing to see others buying the same stock for a lower price :( But as SgMusicWhiz (from your blog link) said in his blog..., this in hindsight bias (on my part)... I must learn to be a little more like you.

Sgbluechip said...

Hi Alvan, I am prepared to see SPH going down to $2 as STI might test the 1000 points neck breaking support within this year. However, I believe the stock market bottom should be this year or at most early next year.

Citi is still losing money. I wouldn't buy any company that is poorly run, losing money and not paying dividends.

Would you?

Sgbluechip said...

Hi JW, your dad bought SPH at $2.80? He is good!

Actually it doesn't matter even if people are buying at a lower price. They might not make money also.

For anyone who sold SPH below $3, I firmly believe most have realised losses even if they have collected last year's dividend.

I am holding it for June's 6 cents (my estimated) dividends.

Drizzt said...

to me sph is the kind of company that is trying very hard to pay dividends.

i used to follow it. used to own it. not anymore. the real returns will depend on newspaper and publishing cashflow.

there are many instances in past few years that it is paying more than free cashflow.

that in anyway is a danger sign.

best regards