Analysis of SP Ausnet Part 2

It is observed from the 2h 2009/2010 interim report that Sp Ausnet has the following strong stable characteristics:

· 86% of revenues are regulated

· 100% of regulated revenues locked in until 2011; 62% locked in until 2013

· Prudent gearing & 99% of debt hedged against movements in interest rates

· ‘A’range credit rating enables access to competitive finance

· Distributions & maintenance capexpaid from operating cashflows

Performances over several quarters are also encouraging:

SP Ausnet has delivered steady dividends since listing. Table D below depicts the dividend payouts since listing

Table D

There was a drop in the dividend issued for 2010 (interim dividend) due to a dilution of equity. In June 2009, SP AusNet successfully completed an accelerated non-renounceable entitlement offer (1 for 4 offer@$0.86) raising a total of $408.4 million. Moreover, due to dividend reinvestment plan, more dilution will occur as the number of outstanding shares increase. Investors have a choice of cash or script dividends.

At current price of SGD$1.14, SP Ausnet provides a decent yield of 8.8% (A$1 to SGD$1.25) before taxes. It is also below its NAV of SGD$1.28, hence investors can purchase SP Ausnet below its IPO (offer adjusted) and NAV price.

Investors can also opt for script dividend which will enable him to accumulate more of SP Ausnet at a 2.5% discount.

Analysis of SP Ausnet Part 1

Background of SP Ausnet (Source: http://www.sp-ausnet.com.au and http://www.singaporepower.com.sg/)

SP Ausnet is a subsidiary of Singapore Power (with a 51% controlling stake) and its operations are managed by staff of Singapore Power in Australia. Singapore Power is a leading energy utility company in the Asia Pacific.

With assets of S$26.3 billion at end March 2009, it is one of the largest corporations in Singapore. It owns and operates electricity and gas transmission and distribution businesses.

SP Ausnet owns and operates electricity transmission and distribution networks and gas distribution assets in Victoria, Australia. It delivers a full range of energy related products and services to more than a million industrial and domestic customers. It was listed on SGX at $1.75 per share in Dec 2005. It current trades at $1.14 a share (03/02/10).

Electricity transmission network – carrying electricity from power stations to electricity distributors across all of Victoria via 12,800 high voltage towers and approximately 6,500 kilometres of transmission lines.

Electricity distribution network – carrying electricity from the high voltage transmission grid to over 600,000 customers across eastern Victoria. This network spans approximately 46,000 kilometres across an area of 80,000 square kilometres.

Gas distribution network – transporting gas to approximately 537,000 customers across central and western Victoria. This network spans approximately 9,400 kilometres across an area of 60,000 square kilometres.

In a nutshell, SP Ausnet derives its income from the follow sources (Figure 1):

SP Ausnet has achieved commendable revenue and EBITDA growth over the last 2 quarters. Below is a screen shot (Figure 2) of its latest 1H 2009/2010 financial highlights:

Part 2 will be devoted on the revenue characteristics of SP Ausnet

Portfolio Updates

My portfolio of invested amount went up slightly to breach the $400k mark last week when I took the opportunity to invest as STI fell. If you have read my post here, you would have realised that I need to invest $66k annually from 2010 and acheive return of 7.1% compounded yield before I can reach $1M in 2015.

This means that I need to invest another $10k more to reach my target this year.

Is that possible? I am not sure. Markets are volatile and the economic cycle seems shorter and shorter. My masters programme seems painfully slow to complete and I am literally struggling with my 14 hour job daily (including weekends).

I have switched to a new role (downgraded actually) in my company which means I have to be monitored closely. I hate that kind of feeling of being watched and assessed by goondos. This means that I am likely to tender my resignation and go into full time studies at the end of this year.

Where can I get $66k to invest if I have to be out of job for 6 months? Classmates will shun me too!! haha.. especially the girls!!

The only consolation I have is that my dividends of at least 5% per year will provide me with $20k of pocket money (annually) if I am out of job. (actually slightly more lah!)

That said, I think with prudent money management, having $400,000 of investment funds right now is a nice moment to savour. Although I hope I can breach the $0.5M mark soon, but I do hope the trade offs that comes along are not high...

Thanks for reading this blog and saving it at your favourites. Many people have followed my investment journey... MW, LP, WJ, JW, Marvin, Drizzit, Panzer, ghchua and many more.. I hope you guys will be around, young and fit when I write my $1M post!! :)

8% return on your deposits!

No, this is not a gimmick! For those who are residing in Australia, you can place your deposits at Westpac (2nd largest bank in Aus) and earn a 8% on your fixed deposit. The only catch is you have to place it for a 5 year term.

Wow, only $5,000 minimum sum and you can do it online! Reits in Singapore are not even yielding that kind of return. Forget SPH, Singpost and Starhub! Come over to Australia and enjoy risk free of 8%! Btw, what's the yield of our CPF? Temasek and GIC?

Imagine you put $1M, get the 8% and reside in China.

Beautiful!

Exchange Programme @ UOA

Dear readers:

Sorry for the lack of updates! Sgbluechip has taken a step to go overseas for studies (exchange programme) and currently resides in University of Adelaide. It is a scary yet refreshing experience. Internet connection took days before it was set up. Some photos will tell a little of my story...

Taking portfolio theory (CAPM) and Alternative Investments modules

Streets of Adelaide

More buildings

The place is just so big! Traffic is fine, people are friendly, air is fresh and climate is wonderful!

I can't blog much, due to limited and slow connectivity. Photos were taken from my trusty 2 MP iphone. SBC apologise for the poor resolutions! More updates will be given when I settle down! Wishing a belated happy new year and a huat year for all my readers!!!

Is GDP a good measurement of life quality?

Consider the following (excerpted) statement by Robert Kennedy in 1968

“…And if the Gross National Product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry, or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials… the Gross National Product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile….”

In Singapore, the government’s competency is assessed based on its ability to grow GDP year on year, quarter on quarter. Every civil servant’s bonus and salary increment depends largely on it. Does high GDP reflects high quality of living?

Consider that GDP is calculated using the following formula: Investment + Consumption + Government Expenditure + Net Exports

GDP measures the total income and total expenditure (since total income will equals total expenditure). It is also the total market value of all final goods and services provided within a country in a given period of time.

Intuitively if we compare countries with high GDP per capita over lower ones, we can see and feel the difference. If you have been to Japan, you will definitely find the quality of life there to be higher than Singapore. The reverse is true for Malaysia or China.

So how does GDP which is quantifiable able to measure quality of life which is not easily quantified?

GDP does not measure the health of Singaporeans. However, because of a larger GDP and high savings rate, Singaporeans are able to afford better quality healthcare. The budget for education has been growing (2^nd largest after defence), thanks to high GDP.

This results in bright students becoming top surgeons, enhancing our pole position as medical hub in Asia. With good education infrastructure in place, quality teachers are employed to produce bright students in local institutions. This in turn helps to increase the production output of our labour, thus increasing our GDP.

High GDP countries allow citizens to access to quality education systems, thus many would be able to admire the beauty of poetry, humanities and arts when given the opportunities and education.

Marriages in high GDP countries though tend to be more fragile as there are more interaction and distractions among people. In fact, high GDP countries tend to have lower birth rate (though not always). This by economics theory might suggest that children are in fact inferior goods! Do not forget that as income rises, consumers switch from inferior goods to normal goods. In our local context, Singaporeans switch from having babies to having pets. Hence humorously, children are inferior goods and pets are normal goods (at least for some people!). I do believe that some pets cost much more to keep than children though!

That said, GDP does not also take into account our wisdom, compassion and our devotion to our country. However, with our basic needs being fulfilled (due to high GDP), we will be able to move up the hierarchy of human needs and foster the above attributes.

There are many arguments that GDP is NOT an accurate or good tool of measurement of well being. I will leave the points of discussion for another day.

Are Singapore girls’ expectations beyond the sky?

Lately, I have been mingling with many of my classmates. Most of them are single, late 20s, with a high paying job and drives a cool vehicle. Sometimes during chill out sessions, they will inevitably talk about their expectations of a boyfriend or partner.

This brings an inspiration for today’s post.

I am absolutely flabbergasted by the standards they have set for their future boyfriends and husbands.

A: I would expect him to earn at least $12,000 a month. Anything less than that is either he is lousy or deserve a lesser human form as wife.

B: He does not need to earn the sky, but he must provide everything for me. I will not want to fork out a single cent for my wedding and matrimonial home.

C: I have even “simpler” needs. He just need to ensure that I can give up my job anytime I want to, possibly if I want to retire by 35, he is able to provide for me and our kids. Hopefully he has his own business and I can give up my job to help him. But he must at least be matching my $10,000 salary now lah! Or else no point giving up my job to work with him right? (Well, his business must be doing extremely well then!!)

D: Well, I expect a romantic proposal from him. Just a wonderful private apartment bought under my name will do. I will love him more!

Sgbluechip: WOW, please do not consider me! I earn a gross $5,000 monthly and will barely touch the $80,000 mark after including all bonuses and allowances. I thought that finding a life partner is beyond dollars and cents, which cannot be quantifiable even with the most abstract model?

A B C D: No worries, we will never consider you! Well, though money does not guarantee happiness, but we do want our husband to earn at least 30% more than us. In that way, we can feel secured and pampered.

Sgbluechip: Well, the median income for Singaporeans is only roughly $3,200 and average income possibly around $4,500. That includes the income of the high net worth individuals which in reality depicts and inadequate representation of the society’s income and standard of living.

Enough said.

A B C D all drives a nice car, earns a 5 figure sum monthly, works in MNC and are under 30. They are highly eloquent and well groomed, somewhat different from the girl next door working in a small company.

It seems that many girls around me are always using their girlfriends’ most eligible boyfriend/husband as a benchmark to set their “vision” and “mission”.

Many Singaporean guys lament that our local girls are pampered and have unrealistic expectations. This might be quite true, especially for girls who have high salary and credentials. Sometimes, I do feel quite amusing mingling with them. I mean, why do people attach monetary value for every single thing they do in their life, including their marriage?

Economist have time and again pointed out that GDP is never a good indicator of standard of living. And by that, it means that an equation of money and happiness can never be drawn even by Einstein. Yet many are conveniently drawing a simple equation with it.

Is there any module in universities that teaches people to love money less?

I think it will be useful to improve every graduate’s real standard of living.

Well that said, I think my perception is only limited to the people I hang around with. I am sure there are many nice girls (which I have also come across) that prefer their guy to be simple. Just a stable career, earning say $3,000 monthly, faithful, homely and reliable guy to be their life partner more than satisfy all expectations.

Not to worry, such guys are a dime a dozen. Let’s just leave the rich boys for A B C D since they live by the adage that money provides all solution and create no problems.