In the Foolish Face-off series, we take a quick look at how some Singapore-listed companies would fare against comparable foreign competitors. The first instalment saw international brewers Thai Beverage pitted against SABMiller.
Singapore Press Holdings publishes newspapers (both print and digital versions), magazines and owns websites that serves as a marketplace for jobs, properties, cars etc. In addition, the company also develops and manages properties.
Paragon, a retail and office complex that is located along Orchard Road (the iconic shopping-belt in Singapore) is part of SPH’s property portfolio. The company depends heavily on advertising, which made up 63% of last year’s yearly turnover.
Pearson’s based in the UK but has business operations in more than 70 countries. You might be familiar with Pearson as a publisher of university textbooks under their Education business. The company holds book publisher Penguin under its corporate umbrella and also owns the FT Group, which publishes the business newspaper, Financial Times.
|Last 12 month Sales||$1.26b||S$10.0b|
Round 1: Valuation
In our first round of the Foolish Face-off, we’ll be comparing the valuations of the two companies using Price-to-Earnings (PE), Price-to-Sales (PS) and Dividend Yield.
|Share Price||S$4.49||1181 pence|
The dividend yields for the shares of both companies are the same. But, we’ll have to give Round 1 to Pearson due to its lower PE and PS ratio.
Round 2: Profitability
In Round 2, we turn our attention to the companies’ profit margins and return on equity. Profit margins indicate how efficient the company is at turning each dollar of sale into profit. Generally, a higher return on equity (ROE) indicates better efficiency in the company’s ability to turn shareholder capital into profit.
|*Based on last 12 month’s financial figures|
SPH loses out slightly on gross margins but handily beats Pearson in the net margin and ROE criteria. For this, SPH takes Round 2!
Round 3: Growth
In Round 3, we will be looking at the compounded annual growth rate (CAGR) for revenue, earnings per share (EPS) and dividends. All three growth elements point toward increasing business value for shareholders, enriching them over time.
|*The financial figures here are based on the companies’ last five completed financial years.
**EPS figures for Pearson is based on its normalised earnings.
We can see that Pearson wins Round 3 easily with positive growth numbers for revenue, EPS and dividends, compared to the negative figures for SPH. However, it’s still important to note that Pearson’s top and bottom-line growth have been anaemic.
Foolish Bottom Line
Final Score: 2-1 to Pearson!
From our cursory glance at SPH and Pearson, it would seem that the UK publisher wins this bout. Pearson’s shares trade at a cheaper price and have displayed marginally better growth. However, Pearson’s profitability leaves a lot to be desired when pitted against SPH’s.
Before you come to any definitive conclusions, it is important to know that there are important factors in the evaluation of a business (such as its cash-flow management, balance-sheet strength and management’s treatment of shareholders) that we have not done.
Interestingly, SPH has almost doubled its Property business’s yearly revenue of S$98.7m in 2006 to S$191.4m in 2012, while releasing more and more digital content. Likewise, Pearson grew its digital and services revenue for its FT Group business from 31% of sales in 2008 to 50% in 2012.
These are very likely to be moves made by the companies to find new sources of revenue as their traditional print-publishing business becomes tougher to operate in with each passing year.
If you’re interested to know more about other businesses, stayed tuned as we bring you more in our series of Foolish Face-offs.
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The Motley Fool’s purpose is to help the world invest, better. The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.