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3 Wise Views on An Oil and Gas Company

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing. For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent perspectives.

To demonstrate, let’s use marine and utility giant SembCorp Industries Limited (SGX: U96) as an example. You can read more about the company here. SembCorp Industries’ marine business comes from its  majority ownership of SembCorp Marine Ltd (SGX: S51). The marine business, which includes building oil rigs and offshore conversions, made up more than half of SembCorp Industries’ 2013 revenue. You can read more about SembCorp Marine here.

With this company, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view

At the closing price of $4.32 on 5 January 2015, SembCorp Industries has a price to earnings ratio below 10 and a dividend yield of 5%. The low PE level and high dividend yield may pique the interest of the value investor. On the other hand, the high debt position in the company and negative free cash flow may not impress the value investor.

The income investor’s view

As pointed out above, SembCorp Industries pays a 5% dividend. The income investor would further note that the dividend represents a 50% payout ratio on its net income. In addition, the income investor may be delighted to know that the dividend has grown over the years as well. Despite the high debt levels, the recurring nature of the utility side of SembCorp industries’ business may bring comfort to the income investor.    

The growth investor’s view

The growth investor may be quite displeased with the oil and gas segment of SembCorp Industries. Although its utility business segment has shown steady growth over the years, revenue from the SembCorp Marine side of the business has been highly cyclical, making the growth of the company harder to imagine for the future. This can be seen from the chart below:

sembcorp industries revenue breakdown

Source: Company Earnings Report

On the other hand, the growth investor might nod approvingly to Sembcorp Industries’ growth potential with future power plant projects in China and India, as well as the $12.6 billion in net orderbook for SembCorp Marine.

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us. Collectively, the differing views may be worth much more than the sum of their parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.