Would Peter Lynch Buy Singapore Post?

Peter Lynch once said that amateurs who devote a small amount of study to companies in an industry they know something about can outperform 95% of the paid professionals who manage mutual funds – plus, have fun doing it.

So, what would Peter Lynch make of Singapore Post (SGX: S08)?

Many of us will know Singapore Post as a mail delivery service. That’s not wrong. But Singapore Post does more than just deliver letters from A to B. It is a logistics company, which means that it plans, implements and controls the effective and efficient flow of goods and services from the point of origin to the point of consumption.

It is also the dominant player in the Singapore market. One of Lynch’s selection criteria is to look for companies that produce products or services that people keep buying during both good times and bad. That is certainly true of Singapore Post.

If Lynch were to stand outside one of Singapore Posts outlets, he would probably be astonished by the level of demand for its service. The wait for an available counter staff at, say, the Ion Shopping Centre branch, can be as long as 20 minutes. I should know – I’ve been there. Thank goodness they have comfy seats.

The range of services that Singapore Post provides has helped it drive revenues. Over the last ten years, sales have more than doubled from $368m to around S$850m. That’s a growth rate of about 9%. However, Net Income hasn’t quite followed suit. The bottom line profit has only grown around 3% a year, which is likely to disappoint Lynch.

To keep investors sweet, Singapore Post pays out a generous proportion of profits as dividends. But the distribution might be a bit too lavish for Lynch’s liking. The payout ratio, which hovers around 70% to 90%, could suggest that Singapore Post might struggle to grow. With a retention rate of 20% and a Return on Equity of around 20%, the implied growth rate is likely to be around 4%.

That said, Singapore Post has cash. It has debts of around S$227m and cash of around S$380m, which leaves it with a net cash pile of S$154m.

In terms of valuation, Singapore Post is valued at 20 times earnings, which is higher than the valuation for the 30 companies that make up the Straits Times Index (SGX: ^STI). By comparison, the UK’s Royal Mail (LSE: RMG) is valued at 13 times prospective earnings, while Germany’s Deutsche Post is valued at 19 times earnings. Put another way, Singapore Post’s valuation is above the industry average, which is something that Lynch would probably not like to see.

Singapore Post is a plodder. The current share price of $1.32 means that the company is yielding 4.5%, which would suggest as much. There is nothing wrong with that. But a plodder is unlikely to get Peter Lynch beating a path to his broker’s door.

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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 Director David Kuo doesn’t own shares in any companies mentioned.