MENU

3 Wise Views on Singapore Post 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 Singapore Post Ltd (SGX: S08) as an example. As a quick introduction, the ever-present Singapore Post is primarily in the business of providing mail and logistics services. Most Singaporeans should be familiar with the company’s namesake mail service.

You can read more about the company in here.

With Singapore Post, 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 $1.90 yesterday, Singapore Post sported a hefty trailing price to earnings (PE) ratio of around 27.7. This is more than twice the average valuation of stocks in Singapore given that 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 ratio of 13.4 at the moment.

As a bargain hunter, the value investor would ideally go for shares with valuations that are lower than the market average. In this case, Singapore Post’s PE ratio may be too high for the value investor to stomach.

To be sure, there may be a couple of other reasons for the value investor to like Singapore Post. As of 31 March 2015, the company had a strong balance sheet with a net cash position of around S$346 million. On top of that, Singapore Post also generates a fair amount of free cash flow (more on this soon).

But with all said and done, the value investor may still not be able to get pass the logistics outfit’s hefty valuation.

The income investor’s view

The first thing about Singapore Post that the income investor would likely notice is the company’s dividend yield of 3.3%; that’s higher than the SDPR STI ETF’s yield of about 2.8%.

The next thing which the income investor might give a nod of approval to is Singapore Post’s dividend track record. In this case, the company’s annual dividend has held steady over its past five fiscal years.

Financial year (ended 31 March) Dividend per share
(Singapore cents)
2011 6.25
2012 6.25
2013 6.25
2014 6.25
2015 6.25

Source: Singapore Post’s earning report

For the same period as the table above, the logistics firm has also generated steady free cash flow (operating cash flow minus capital expenditures). This trait might provide financial viability for the share’s dividends and would be something the income investor’s happy to see.

FCF and Dividends Singpost

Source: Singapore Post’s earnings report

On the flip side though, the income investor might have concerns over Singapore Post’s stagnant mail division (more on this below). In all, the presence of cash flow and track record of steady dividends may be enough to interest the income investor to investigate further.

The growth investor’s view

At first glance, the growth investor might like the growth prospects of Singapore Post.

Revenue Singpost

Source: Singapore Post’s earnings report

From the graph above, we can see that Singapore Post’s logistics division and retail & eCommerce division have shown admirable revenue growth over the past five fiscal years, even helping to pull up the slack for the stalling revenue growth in the company’s main Mail division.

But the heady revenue top-line growth in the logistics and retail & eCommerce divisions may not even have benefitted the firm that much as their profit contributions are still tiny in the grand scheme of things. You can see these in the graph below.

Operating Profit Singpost

Source: Singapore Post’s earnings report

The graph also highlights something important for investors to note: The changes to the Mail division’s operating profits. The division is still the leader by far in terms of contributions to Singapore Post’s total operating profit, but the selfsame figure for the division has basically stalled over the past few years.

Given the lack of operating profit growth, the growth investor may be less sanguine about Singapore Post and would perhaps be interested to observe if the company is able to successfully manage a transition from providing traditional mail services to a focus on logistics and retail & eCommerce.

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.

For more 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.