For anyone who?s compiling a list of investing greats, it?s hard to leave out Benjamin Graham. Besides running a fund that had delivered long-term returns of around 20% per year, Graham?s also the author of several influential investing texts (such as The Intelligent Investor) and was a very important mentor to billionaire investor Warren Buffett.
It?s a pity that investors today can?t directly find out what Graham might think of the companies in Singapore?s stock market ? he had passed away fourty years ago in 1976. But, he did develop a 10-point investing checklist during his career. Let?s see what…
For anyone who’s compiling a list of investing greats, it’s hard to leave out Benjamin Graham. Besides running a fund that had delivered long-term returns of around 20% per year, Graham’s also the author of several influential investing texts (such as The Intelligent Investor) and was a very important mentor to billionaire investor Warren Buffett.
It’s a pity that investors today can’t directly find out what Graham might think of the companies in Singapore’s stock market – he had passed away fourty years ago in 1976. But, he did develop a 10-point investing checklist during his career. Let’s see what it can tell us about Singapore Telecommunications Limited (SGX: Z74).
As a brief introduction, Singapore Telecommunications, or Singtel for short, is Singapore’s largest telecommunications services provider. The company also owns Australia’s second largest telco and has stakes in many other leading telcos in other parts of Asia.
With that, let’s see how Singtel fares against Graham’s checklist:
1. An earnings-to-price yield at least twice the triple-A bond rate
Singtel’s latest financials (for the 12 months ended 31 March 2016) show that it has earnings per share of S$0.243. At its current price of S$3.87, Singtel thus has an earnings-to-price yield of 6.28%.
Meanwhile, the Singapore government 10-year bond has a yield of around 2.2% right now, according to the Monetary Authority of Singapore. Currently, there are a few credit rating agencies that have given Singapore a triple-A rating.
It’s clear that Singtel’s earnings-to-price yield is over twice a triple-A bond’s yield right now.
2. P/E ratio that is 40% or less than the highest P/E ratio the stock has had over the past five years
Over the past five years, Singtel’s highest P/E ratio had been 19.3. The telco’s current P/E is 15.9, as alluded to in Point 1. This is just 83% of the peak P/E.
3. A dividend yield of at least two-thirds the triple-A bond yield
With its annual dividend of S$0.175 per share for its fiscal year ended 31 March 2016 (fiscal 2016), Singtel has a dividend yield of 4.52% at its current price. This is higher than the triple-A bond yield seen in Point 1.
4. A stock price that’s below two-thirds of the tangible book value per share
Singtel currently has a tangible book value of S$0.753 per share, which is far lower than its current share price.
5. A stock price below two-thirds of net current asset value (total current assets minus total liabilities)
Singtel has a negative net current asset value of S$1.34 billion at the moment, which is clearly lower than its market capitalisation of S$61.7 billion.
6. Total debt less than tangible book value
The telco has total debt of S$9.94 billion right now versus a higher tangible book value of S$12.0 billion.
7. Current ratio (total current assets divided by total current liabilities) greater than two
With total current assets of S$5.17 billion and total current liabilities of S$6.54 billion, Singtel has a current ratio of just 0.79.
8. Total debt less than twice of net current asset value
Given the numbers we’ve seen earlier, Singtel’s total debt is higher than its net current asset value.
9. Compound annual earnings growth rate of 7% over past 10 years
From fiscal 2006 to fiscal 2016, Singtel’s earnings per share had declined slightly from S$0.250 to S$0.243.
10. Stability of earnings: No more than two years of declining earnings of 5% or more over the past 10 years.
In the 10 year episode seen in Point 9, Singtel’s earnings had declined by more than 5% in three separate years. That would be fiscal 2007 (a 7% fall), fiscal 2009 (13%), and fiscal 2013 (12%).
Of Graham’s 10 points in the checklist, Singtel has managed to meet just three of them. Given this, it’s unlikely that Graham will think too highly of Singtel at the moment.
But, it should be noted that investors with a different investing preference to Graham can have a completely different view of Singtel. That’s fine too.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.