Fishing for Opportunities in Singapore’s Consumer Staple Companies

There are wants and then there are needs.

Consumer staples are the things we need for our day-to-day life. Some examples include essentials like food and beverages. Consumer discretionary products, on the other hand, are products which are not considered as needs. Examples here would include automobiles, fashion apparel, jewellery, and the like. Singapore’s stock market has a good number of companies from both ends of the consumer spectrum.

According to a recent report from bourse operator Singapore Exchange Limited (SGX: S68), there are 167 consumer companies listed locally. From this figure, 54 companies have market capitalisations of above S$200 million. Within the 54 companies are 21 which belong to the consumer staples sector.

Here are four useful observations on the group of 21 companies that are dealing with consumer staples (data as of 30 March 2016, unless otherwise stated):

  1. As of 18 January 2016, the ten largest consumer staple stocks made up 7.5% of the total market capitalization for Singapore-listed stocks. Among the top 10 then, the trio of Thai Beverage Public Company Limited (SGX: Y92), Wilmar International Limited (SGX: F34), and Golden Agri-Resources Ltd (SGX: E5H) happen to be component stocks of the Straits Times Index (SGX: STI).
  2. On average, the consumer staple companies had valuations higher than that of the the SPDR STI ETF  (SGX: ES3), an exchange traded fund that mimics the fundamentals of the Straits Times Index. As of 1 April 2016, the SPDR STI ETF had a price-to-earnings (PE) ratio of 11.5 and a price-to-book ratio (PB) of under 1.2. In contrast, the consumer staples basket had an average PE and PB ratio of 27.8 and 2.0, respectively.
  3. There isn’t much to excite dividend hunters within the consumer staple stocks. Super market operator Sheng Siong Group Ltd (SGX: OV8) offered a yield of 3.9%. Meanwhile competitor Dairy Farm International Holdings Ltd (SGX: D01) is providing a dividend yield of 3.8%. For perspective, the SPDR STI ETF weighed in with a 3.5% yield as of 1 April 2016. Sustainability of the dividend payout of companies might be a key consideration.
  4. Dairy Farm has fallen over 40% over the past three years. The performance of instant coffee manufacturer Super Group Ltd (SGX: S10) has not been so hot either, falling by a similar magnitude over the same timeframe. There might be good reasons for these. Looking at the performance of the underlying businesses might help investors decide whether the falls in the two stocks were justified or not.

Looking back helps us understand how the companies have fared over the past three years and gives us a clue on which company might be worth following.

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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 owns shares in Dairy Farm International Holdings and Super Group.