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At What Price Would Benjamin Graham Buy Singapore Post?

Singapore Post Limited (SGX: S08) or SingPost is the main provider of postal services in Singapore.

As well as Mail, its other key business segments are Logistics and Retail. The company, which is an associate company of SingTel (SGX: Z74), is worth a sizeable S$4.2b.

The stock price had been steadily climbing up until the end of January when it hit a 52-week high of S$2.16 a share. But since then it has fallen to S$1.96. So what price would a value investor put on Singapore post?

SingPost’s earnings had been falling from 2010 to 2013. But the company seems to have turned a corner in 2014.

Based on earnings alone, the company appears to be priced a bit too high. To bring its earnings yield, which currently stands at around 3%, up to a value of around twice the risk-free return, the shares would need to fall by over 20% to S$1.51.

The company’s price-to-book suggests it is overpriced too. The current price-to-book of four would only drop to below one, if the shares fell by a whopping 75% to just 0.48 cents a share.

This would wipe off around S$3b from the value of the company. This certainly seems extreme and in reality value investors might step in long before the stock had a chance to tumble by that much.

One metric that suggests there might be value in SingPost is its dividend yield. Investors have received a fairly steady payout of 6.5 cents a year. The current dividend yield is 3.4%. By comparison, the risk-free return is just 2.2%.

In other words, the stock price would need to gain 65% to S$3.22 before it would be better to invest in US 10-year Treasury Bonds. However, if we insist on a dividend yield of around 1-1/2 times the risk-free rate to compensate for the risks involved, then SingPost could be priced about right.

The three metrics seem to suggest SingPost is not a screaming value share. On two separate measures it looks pricey and on a third measure it is about right.

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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 Adam Kuo doesn’t own shares in any companies mentioned.