3 Wise Views on SembCorp Marine Ltd

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 and Foolish perspectives.

To demonstrate, let’s use SembCorp Marine Ltd  (SGX: S51), a leading player in the offshore and marine sector, as an example. Its business is made out of three major segments: Rig Building; Offshore and Conversion; and Repair. It is also majority owned by SembCorp Industries Limited (SGX: U96).

You can read more about the company here.

With SembCorp Marine, 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 its closing price of $2.96 yesterday, SembCorp Marine is down by nearly 30% from its 52-week high and carries a trailing price to earnings (PE) ratio of just 11. These figures might perk the ears of the value investor.

The value investor may also notice that SembCorp Marine’s PE ratio is lower than the SPDR STI ETF’s (SGX: ES3) trailing PE of 14. The SPDR STI ETF is a proxy for Singapore’s market barometer, the Straits Times Index  (SGX: ^STI).

Furthermore, the uncertainty around the oil and gas industry now could also make the value investor think that there may be an opportunity to dig deeper here.

The income investor’s view

SembCorp Marine had a trailing dividend yield of 4.4% as of 7 April 2015 – that’s a yield which may attract the income investor.

Despite the volatile nature of the oil and gas industry (as best exemplified by how the revenue of Sembcorp Marine’s Rig Building segment had swung wildly these past few years), the company’s ordinary dividends per share has been fairly unchanged since 2009. That could be another plus point for the company.


Source: SembCorp Marine’s Earnings Report

That said, Sembcorp Marine’s negative free cash flow and net debt position at the moment may give the income investor some pause. SembCorp Marine’s less than stellar financials and the nature of its industry may prompt the income investor to demand for a higher margin of safety.

The growth investor’s view

In contrast to the value investor, the growth investor might be befuddled with any attraction behind SembCorp Marine.

The largest segment for the firm – the rig building segment – is also the most volatile and hard to predict, as you can see in the chart above. Furthermore, the segment hasn’t been able to enjoy any consistent revenue growth.

SembCorp Marine’s $11.4 billion in net order book at the end of 2014 may bring some solace, but it could take a lot more to convince the growth investor on the investment merits of 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 theirs 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.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

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.