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Is Singapore Press Holdings Limited a Cheap Blue Chip?

When looking at price/earnings (PE) ratios, newspaper publisher and property developer Singapore Press Holdings Limited (SGX: T39) does not seem to be cheap when compared to other blue chips.

Currently, Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), is valued at around 13.5 times its trailing earnings based on data from the SPDR STI ETF (SGX: ES3). The Straits Times Index’s 30 constituents (of which Singapore Press Holdings is one) are known as blue chips, and the SPDR STI ETF is an exchange-traded fund which aims to mimic the fundamentals of the index.

At its current price of S$4.23, Singapore Press Holdings carries a PE ratio of 16.9. The share can thus be said to be a pricey share when compared to the other blue chips.

A history of value

A look back at the share’s valuation-history also reveals that its current PE ratio is a tad higher than its long-term average of 15.4 going back to the start of 2004. This again reinforces the idea that Singapore Press Holdings’ shares does not deserve the tag “cheap.”

Singapore Press Holdings PE ratio

Source: S&P Capital IQ

But, it should be noted that looking at PE ratios the way I’ve done – without putting Singapore Press Holdings’ business future into context – does not give us the whole picture. As investor Ric Dillon once said:

“On the behavioural-finance side, one of many inefficiencies comes from people anchoring on the past. People assume something is cheap, say, just because it hasn’t traded at such a low valuation for five or ten years. But that doesn’t matter, what matters is what will be.”

Put another way, it doesn’t matter if a share carries a high valuation so long as its business future can justifiably warrant strong optimism.

Falling readers

Unfortunately, the horizon looks stormy for Singapore Press Holdings’ business future. The company publishes newspapers and magazines (Singapore’s largest daily paper, The Straits Times, is run by Singapore Press Holdings), and also develops, owns, and manages properties. It also has its fingers in a number of other pies, such as online classifieds, radio broadcasting, events organising, and other online portals.

Singapore Press Holding’s main revenue source has come from clients placing adverts on its printed media such as newspapers and magazines. For the financial year ended 31 August 2014 (FY2014), this form of advertising revenue actually made up 58.1% of its overall top-line. Unfortunately, that is also where the storm has hit the hardest.

Singapore Press Holdings Ad Revenue Change

Source: S&P Capital IQ Singapore Press Holdings’ filings

As you can see from the chart above, Singapore Press Holdings’ newspaper ad revenue has been seeing consistent year-on-year declines since FY2012. The deterioration also seems to be accelerating given that the magnitude of year-on-year declines in FY2014 has been increasing.

The drop in ad revenues wouldn’t be too much of a surprise if we look at the next chart below, which plots the company’s readership trends; since 2010, readership has been dropping steadily.

SPH readership trends

Source: Singapore Press Holdings’ FY2013 annual report

With lesser readers, advertisers’ aims of reaching as wide an audience as possible per dollar of ad-spending can’t be fulfilled.

Falling… elsewhere

Meanwhile, Singapore Press Holdings’ other segments aren’t doing too well either. For instance the company’s “Others” business segment – which houses the company’s businesses that deal with online classifieds, online portals, events organising, radio broadcasting etc. – has yet to eke out any pre-tax profit between FY2005 and FY2013.

In FY2014, the “Others” segment managed to clock a pre-tax profit of S$12.2 million, but that came on the back of a one-off sale of some of its online businesses. If the one-off gain were stripped away, the segment would have suffered a pre-tax loss of around S$40.6 million instead.

Singapore Press Holdings’ property-related businesses includes its management and majority ownership of SPH REIT (SGX: SK6U). Currently, the real estate investment trust owns two retail malls, namely, Paragon and Clementi Mall. Singapore Press Holdings also has the Seletar Mall, which is slated for opening at the end of the year.

These are all housed under the company’s Property business segment – and it too, hasn’t managed to grow. In FY2009, the segment’s pre-tax profit reached a peak of S$242 million; in FY2014, the figure only managed to touch S$239 million.

Foolish Bottom Line

There are certainly things to worry about Singapore Press Holdings’ future. But, the company’s not sitting idly by. It completed an in-depth organizational review in FY2014 with the aim of improving its business. To that effect, part of the transformation involves a leaner manpower structure which can help reduce costs in the future. The changes can already be felt; in FY2014, Singapore Press Holdings’ headcount had decreased from 4,339 a year ago to 4,204.

In Singapore Press Holdings’ latest earnings release, its Chief Executive, Alan Chan, showed his optimism about the company’s future in his comments:

“FY2014 marks a milestone year for the Group. Having completed the organisational review during the year, the Group has undertaken a journey of transformation to counteract the challenges presented by a rapidly evolving media landscape. We have gained traction in our quest and will be intensifying efforts to reinvigorate the core media business. We will also continue to pursue opportunities that position the Group for sustainable growth and value creation. On this note, we look forward to the opening of The Seletar Mall by the end of the year.”

Only time will tell if Singapore Press Holdings can be successful in its transformation to drive future growth. But as it stands, there’s plenty of work for the company to do to change its fortunes.

Investors would really have to weigh the risks and rewards with this company in order to come up with an intelligent investing decision.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.