There are many ways to find investment ideas. Some useful methods are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue. Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they…
There are many ways to find investment ideas. Some useful methods are to screen for stocks or to look at a list of stocks near their 52-week lows to sieve out potential bargains. Studying what institutional investors have been buying or selling is another avenue.
Institutional investors are typically large investment organisations, such as hedge funds, mutual funds, unit trust companies, sovereign wealth funds, insurance companies and so on. These investors tend to possess vastly greater resources than individual investors like you and me when researching stocks. Hence, it may be useful to keep a close eye on what they are doing, as a way to generate ideas.
In this article, I will look at three Singapore stocks that were in the list of the top 10 stocks that saw the highest net sales in dollar value by institutional investors for the week ended 8 June 2018. They are: Singapore Telecommunications Limited (SGX: Z74), Keppel Corporation Limited (SGX: BN4), and Venture Corporation Ltd (SGX: V03).
Source: Singapore Exchange; SGX Stock Facts
Singtel is a company that needs little introduction, given that it’s the largest of the three main operational telcos in Singapore.
In Singtel’s latest earnings update for the quarter ended 31 March 2018 (which is its fiscal fourth quarter), the company reported a 0.4% year-on-year increase in revenue to S$4.3 billio and a 19% decline in net profit attributable to shareholders to S$780.6 million. Weaker results from some of Singtel’s regional associates (Airtel in India and Telkomsel in Indonesia), and adverse currency movements, were big culprits in Singtel’s bottom line decline.
Sintel’s board also recommended a final dividend of S$0.107 per share for the quarter, bringing its total ordinary dividend for FY2018 to S$0.175 per share (this excludes a special dividend of S$0.03 per share). This is flat compared to the total dividend of S$0.175 per share for FY2017.
For FY2019, Singtel expects: (a) its revenue to grow in the “low single digit” range; (b) its EBITDA – earnings before interest, taxes, depreciation, and amortisation – to be “stable”; (c) capital expenditure of around S$2.2 billion; (d) free cash flow of around S$1.9 billion; (e) dividends of around S$1.4 billion from its regional associates; and (f) its dividend to be maintained at S$0.175 per share. In fact, Singtel also expects its dividend for FY2020 to be at S$0.175 per share, after which it will revert to a payout ratio of between 60% and 75% of its underlying net profit.
The next company, Keppel Corp, is a conglomerate with major business segments that include Offshore & Marine, Property, Infrastructure, and Investment. In the past few years, Keppel Corp has seen its business results deteriorate, mainly due to the sharp decline in oil prices that started in 2014. Recently though, the company has started showing signs of a turnaround in its business.
In the first quarter of 2018, Keppel Corp reported that revenue was up by 17.8% year-on-year to S$1.47 billion. Similarly, net profit attributable to shareholders rose 33.7% to S$337.47 million, resulting in a 34.1% jump in diluted earnings per share to 18.5 cents. Keppel Corp’s growth can be attributed to strong performances in its Property and Infrastructure divisions. The Offshore & Marine segment remained weak – revenue fell by 31.3%, and a tiny profit to shareholders of S$95,000 in 2017’s first quarter became a loss of S$22.78 million in the reporting quarter.
There were other bright spots in Keppel Corp’s latest earnings update. The company’s balance sheet strengthened sequentially, with a net debt position of S$5.1 billion as of 31 March 2018, down from S$5.5 billion at end-2017; as a result, the company’s net gearing (net debt over equity) declined to 0.42 from 0.46. The other bright spot came in the form of the Offshore & Marine segment’s net order book (excluding orders from the collapsed Sete Brasil) growing from S$3.9 billion at end-2017 to S$4.3 billion in 2018’s first quarter.
In its latest earnings update, Keppel Corp provided some guidance for its businesses:
“[For the Offshore & Marine business:] The Division will continue to focus on delivering its projects well, exploring new markets and opportunities, investing in R&D and building new capabilities to position itself for the upturn. The Division is also actively capturing opportunities in production assets, specialised vessels, gas solutions and niche markets, as well as exploring ways to re-purpose its technology in the offshore industry for other uses.
[For the Property business:] The Division will remain focused on strengthening its presence in its core and growth markets, while seeking opportunities to unlock value and recycle capital.
[For the Infrastructure business:] Keppel Infrastructure will continue to build on its core competencies in energy and environment-related infrastructure as well as infrastructure services businesses to pursue promising growth areas. Keppel Telecommunications & Transportation will continue to develop its data centre business locally and overseas. Besides building complementary capabilities in the growing e-commerce business, it plans to transform the logistics business from an asset-heavy business to a high performing asset-light service provider in urban logistics.
[For the Investments business:] Keppel Capital will continue to allow the Group to more effectively recycle capital and expand its capital base with co-investments, giving the Group greater capacity to seize opportunities for growth. Keppel Capital will also create value for investors and grow the Group’s asset management business.”
Lastly, I have Venture, an electronics manufacturing services provider with expertise in a wide range of activities that include printing & imaging, networking & communications, retail store solutions & industrial, computer peripherals & data storage, and others.
In its latest earnings update, which was for the first quarter of 2018, Venture reported a 1.5% year-on-year increase in revenue to S$856.0 million. Its profit attributable to shareholders did much better, jumping by 72.2% to S$83.7 million. Similarly, Venture’s diluted earnings per share (EPS) climbed 67.4% year-on-year to 28.8 cents.
Venture also ended the reporting quarter with a strong balance sheet. As of 31 March 2018, the company had S$765.3 million in cash and equivalents, and just S$40.7 million in total debt. This gives Venture a net cash position of S$724.6 million, up significantly from S$399.6 million as of 31 March 2017.
Here are Venture’s comments on its outlook that were given in its latest earnings update:
“In spite of the weakened US dollar and heightened uncertainty due to geo-political environment, the Group managed to report a creditable set of results in the first quarter of 2018.
The Group remains steadfast in execution along several key initiatives. Venture continues to leverage its core capabilities in engineering, advanced manufacturing and supply chain management to drive operational excellence and deep value creation. Venture plans to grow its pool of strategic partnerships and its technological diversity with expansion into new and adjacent ecosystems. Excellent execution of these ongoing and new initiatives will support the Group’s endeavor to build sustainable growth and performance.”
Looking at what institutional investors are doing could be a useful tool in your toolkit when sourcing for investment ideas. But do note that the information presented here is by no means a recommendation to take any action on the stocks mentioned. Instead, it should be viewed only as a useful starting point for further research.
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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.