3 Wise Views on Singapore Press Holdings Limited

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 media giant, Singapore Press Holdings Limited  (SGX: T39) as an example. Better known as SPH, the company’s business can be divided into three major buckets: Newspaper and Magazine; Property; and Others.

SPH’s also the sponsor, majority owner, and manager of SPH REIT (SGX: SK6U), a real estate investment trust which owns retail malls and which also represents a portion of SPH’s Property business segment. You can read more about SPH in here and 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 its current price of S$4.11 (4:30 pm), SPH sports a trailing price to earnings (PE) ratio of 18.7. The conservative value investor may realise that this valuation is higher than the market average and thus lose enthusiasm for SPH. The SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the fundamentals of Singapore’s market barometer the Straits Times Index (SGX: ^STI) – has a trailing PE of 13.3 at the moment.

SPH’s weak balance sheet and spotty track record in generating free cash flow may also further deter the value investor. As of 28 February 2015, SPH carried S$867 million in cash and equivalents and S$1.9 billion in debt; although debt comes with the territory for property development firms in Singapore, SPH’s sizable borrowings may not sit too well with conservative value investors who are concerned about risk.

More’s to come shortly regarding SPH’s free cash flow.

The income investor’s view

At its current price, SPH offers an attractive dividend yield of 5% based on its dividends for its last completed fiscal year. At first glance, this compares favorably with the 2.8% yield offered by the SPDR STI ETF.

However, the income investor would have noticed that SPH’s dividends have steadily declined over the firm’s past five fiscal years (note: the dividend payout for the financial year ended 31 August 2013, or FY2013 for short, included a special dividend of 18 cents per share; without the special dividend, it would be a continuation of a downtrend).

Financial year ended 31 August Dividend per share (Singapore cents)
2010 27
2011 24
2012 24
2013 40
2014 21

Source: SPH’s website; SPH’s earnings report

Like the value investor, the attentive income investor may also note SPH’s inability to consistently generate free cashflow (operating cash flow minus capital expenditure) over the five year period from FY2010 to FY2014. To that point, you can see in the chart just below that SPH’s free cash flow has been declining and actually turned negative in FY2013 and FY2014.

SPH's Operating Cashflow and Capital Expenditures

Source: SPH’s Earnings Report

On top of that, SPH REIT’s Newspaper and Magazine segment (the company’s largest) has also seen declining revenue over the years.

So despite SPH’s high dividend yield, the income investor does have a number of reasons to reconsider this dividend stock.

The growth investor’s view

Finally, we have the growth investor and he or she might be feeling a little “meh” with the growth prospects of SPH. From the graph below, which plots SPH’s revenue growth from FY2010 to FY2014, there isn’t much that would jump out at the growth investor.

SPH Revenue Segment

Source: SPH’s Earnings Report

The revenue for the firm’s largest segment – the newspaper and magazine segment – has declined, as mentioned earlier. Part of the reason is because the segment’s undergoing a transition from print to digital formats.

There is a hint of growth in the digital newspaper format (as depicted in the presentation slide below), but the growth investor would like to see growth in both the segment’s top- and bottom-lines – unfortunately, both are not present.

2015-06 SPH Presentation Slide

Source: SPH’s Earnings Presentation

The chart below shows clearly how there’s been a lack of growth in the newspaper and magazine segment’s profit. In fact, the segment’s profit has been sliding.

SPH Profit Segment

Source: SPH’s Earnings Report

These trends – the lack of growth in both revenues and profits for SPH’s important business segments – would be troubling for the investor in search of growth. As such, the growth investor might want to give SPH a pass by virtue of its lack of growth and high PE ratio (as mentioned earlier).

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 its 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.