What Does the Future Hold for Dividend Stock Singapore Press Holdings Limited? – Part 2

Welcome to the second part of the series on Singapore Press Holdings Limited  (SGX: T39), a company that’s more popularly known as SPH. In my previous article, I covered some important aspects of SPH’s revenue.

In here, I’ll take a closer look at its profits, cashflows, and balance sheet.

As a brief recap: SPH may be best known as a publisher of most of the major newspapers here in Singapore (think The Straits Times, The Business Times, and so on).

But there’s more to the company beyond that; It also engages in property development and other activities like events management. In addition, the firm’s also the majority owner and manager of SPH REIT (SGX: SK6U), a real estate investment trust which owns retail malls.  Currently, there are only two malls in SPH REIT’s portfolio and they are namely Paragon and Clementi Mall.

Another closer look

After taking a look at SPH’s revenue segments, we should also find out if the top-line contributions – especially for the newspaper and magazine segment – drips down to the bottom-line.

SPH Profit Segment

Source: SPH’s Earnings Report

The chart above shows how the pre-tax profits for SPH’s various business segments have evolved over the firm’s past five fiscal years stretching from the fiscal year ended 31 August 2010 (FY2010) to FY2014.

Over the period examined, SPH’s overall pre-tax profit has dropped by a total of 10% (you can probably get a feel for this from the chart above).

The main culprit would be the newspaper and magazine segment. From FY2010 to FY2014, the pre-tax profit for the newspaper and magazine segment fell by 32%. This is troubling as the segment accounted for 46% of SPH’s total pre-tax profit in FY2014.

Let’s take a look at the company’s operating cashflow and capital expenditures next.

SPH's Operating Cashflow and Capital Expenditures

Source: SPH’s Earnings Report

For the five years studied, SPH has managed to keep its capital expenditures low. However, the company’s operating cashflow has fallen under its capital expenditures over the past two years. This means that SPH has generated negative free cash flow in two out of its past financial five years – that’s not a desirable trait.

Let’s move on to the balance sheet next.

SPH Cash and Borrowings

Source: SPH’s Earnings Report

SPH’s balance sheet may reflect the lack of free cash flow in the past two years given that the company’s debt levels have grown noticeably. Furthermore, SPH has remained in a net debt position over the past five years. The media giant ended FY2014 with $442 million in cash and cash equivalents and a hefty $1.8 billion in borrowings.

Foolish Summary

When we piece the overall picture together, we may see SPH as a company in the midst of a difficult transition for its main newspaper and magazine business.

We may want to keep an eye on changes to the newspaper and magazine segment to see if SPH can muster a turnaround in profits. The past two years have not been kind to the company’s free cash flow as well, so that may be an area to keep an eye on alongside the growing debt levels on the company’s balance sheet.

The cautious investor may want to demand for a larger margin of safety and be wary of SPH’s ability to maintain its current level of dividends going forward.

Based on yesterday’s close, SPH is trading at a trailing price-to-earnings ratio of about 18.5 and has a dividend yield of around 5.2% (based on its dividend of S$0.27 per share in FY2014).

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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.