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Foolish Face-Off: Singapore Post versus Royal Mail

boxing gloves Welcome to our latest instalment of the Foolish Face-off! This series helps us make quick-and-dirty comparisons between two listed companies with similar business operations.

Previously, in our Foolish Face-Off segments, we saw how Breadtalk fared against Panera Bread and discovered who won between the friendly mano-a-mano between Sheng Siong and Dairy Farm Holdings.

In this article, we will pit Singapore Post (SGX: S08) against Royal Mail (LSE: RMG) and determine which company emerges victorious.

Introducing the “Boxers”

SingPost has a rich heritage dating back to 1819, the year our sunny island was founded by Sir Stamford Raffles. Growing from strength-to-strength, SingPost is now Asia’s leading postal operator with interests spanning 10 countries, offering both domestic and international postal services. For those uninitiated, SingPost is also an associate company of SingTel (SGX: Z74), which owns 31% of SingPost.

On the other hand, Royal Mail is a postal operator in the United Kingdom. Royal Mail has a history dating way back to 1516. Its iconic red post boxes known as Pillar Boxes are famous the world over. The firm went public recently on 15 October 2013.

SingPost Royal Mail
Market Cap S$2.5b £5.9b
Revenue S$658.8m £9.1b

(figures used are from share price at time of writing and Financial Year 2013)

Round 1: Valuation

As prudent investors, it is important to know the valuations of shares to see which is being offered at a cheaper price in the market. Looking at the absolute price alone does not tell us anything about the business as the price is not equal to value of the business. We’ll now compare the Price-to-Earnings (PE), Price-to-Sales (PS) and Dividend Yield of the two companies.

SingPost Royal Mail
PE

18.2

10.4

PS

3.8

0.6

Dividend Yield

4.77%

3.38%

Share Price

$1.305

£5.916

(figures used are from share price at time of writing and Financial Year 2013)

Royal Mail’s shares have been accorded a much lower PE and a lower PS than SingPost’s shares. Even though the absolute price of Royal Mail is much higher than that of SingPost, Royal Mail seems to be cheaper in terms of valuation.

Do note that the dividend yield for Royal Mail is projected as it has not paid out any dividends as yet. The earliest dividends will be paid out in July 2014.

With two out of three criteria in Royal Mail’s favour, Royal Mail is the winner in this round.

Winner: Royal Mail

Round 2: Profitability

In this round, we will scour the profitability of the companies in terms of profit margins and Return on Equity (ROE). The ROE figure indicates how efficient the management is in turning every dollar of shareholder capital into profits.

SingPost Royal Mail
Gross Margin

32.6%

25.1%

Net Margin

20.7%

6.1%

Return on Equity

42.6%

40.4%

(figures used are from Financial Year 2013)

It can be seen that for every dollar of revenue created by SingPost, 20.7 cents is generated as profits while for Royal Mail, every pound of revenue only generates 6.1 pence in profits.

SingPost is the clear winner in this round, with all figures trouncing that of Royal Mail.

Winner: SingPost

Round 3: Growth

In the final round, we’ll be looking at some numbers concerning the growth of the two giants. Companies that can grow their sales and profits steadily over time should also see their intrinsic value rise accordingly in the long-term.

SingPost Royal Mail
Revenue Growth CAGR

7.8%

-0.7%

EPS Growth CAGR

-9.1%

20.8%

Dividend Growth CAGR

0%

(figures used are from Financial Year 2010 to 2013)

SingPost has gained 7.8% per annum in terms of revenue while Royal Mail saw its revenue decline. Do note that in FY2010, Royal Mail had negative earnings but SingPost did not face such an issue. Therefore, the EPS CAGR is inflated for Royal Mail.

SingPost has been consistently paying 6.25 Singapore cents per share from FY2010 to FY2013.

In this round, SingPost emerges triumphant as well.

Winner: SingPost

Foolish Bottom Line

Final Score: 2-1 to SingPost

SingPost is the overall winner here today with better profitability and faster growth. SingPost also has a longer history as a listed company, compared to Royal Mail. Thus far, SingPost has been a stock market darling due to its consistent dividend payments.

However, it is paramount to note that a solid conclusion cannot be made on which company is a better one as there are plenty of other important aspects that have not looked into. For example, we have not delved into the balance sheet strength and the respective cash flow situation of the two companies. We have also not looked into the management and their track record.

This Foolish Face-Off serves as a direction in the right path and takes some heavy-lifting off your back.

If you are keen to find out more about how other companies in the same industries stack up against each other, do stay-tuned for more of our Foolish Face-Offs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.