Warren Buffett once said that as an investor, it is important to be “fearful when others are greedy and greedy when others are fearful.” The idea is simple. When everyone is buying shares in a company, it’s unlikely that the company’s shares will be a good bargain. On the other hand, when others are shying away from the shares of a company, we might be able to pick some up at a good price.
How can we tell if investors are staying away from a company’s shares? By seeing if it has fallen hard in recent times. In this spirit, here are three blue-chip shares with prices that have declined significantly from their respective highs over the past year: Singapore Telecommunications Limited (SGX: Z74), DBS Group Holdings Ltd (SGX: D05), and Thai Beverage Company Limited (SGX: Y92).
Source: SGX.com Stock Facts
Singtel is a company that needs little introduction, given that it’s the largest telco in Singapore’s market. In Singtel’s latest earnings update – for the quarter ended 30 June 2018 – the company reported a slight 0.5% year-on-year decline in revenue to S$4.1 billion. The lower top-line led to the telco’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) stepping up down by 2.7% to S$1.2 billion, and a 6.6% fall in net profit to S$832 million.
Excluding exceptional items, Singtel’s underlying net profit sank by 19.3% year-on-year to S$733 million on the back of: (a) weaker results from regional associates Airtel and Telkomsel; (b) a reduced economic interest in NetLink NBN Trust (SGX: CJLU) following the IPO of the trust in July 2017; (c) an increase in withholding taxes from higher dividends; and (d) adverse currency movements.
But, there are also positives found in Singtel’s latest earnings update. Here are comments from Chua Sock Koong, Singtel’s CEO, along those lines:
“This quarter’s results reflect the resilience of our core business against intense competition and increasing business headwinds. The Group continued to record data growth and Optus made gains in both the consumer and enterprise markets, bolstered by our quality networks, differentiated content and comprehensive ICT capabilities. Our overall focus on digitalisation and automation has also improved customer engagement and delivered productivity gains and cost savings.
We start the year with 23% of Group revenue from ICT and digital businesses and we expect contributions from these businesses to rise further as we continue to build capabilities in these new growth areas. Our digital marketing arm Amobee recently acquired the assets of Videology, an ad-tech platform provider for advanced TV and video advertising.”
Looking ahead, Singtel expects the following for its fiscal year ending 31 March 2019 (FY2019):
1. Revenue growth in the “low single digit” range;
2. “Stable” EBITDA;
3. Capital expenditures of around S$2.2 billion;
4. Free cash flow of around S$1.9 billion; and
5. Dividends of around S$1.4 billion from its regional associates
Next, I have DBS Group, Singapore’s largest bank by total assets. Despite the recent decline in DBS Group’s share price, the bank actually reported a good set of results in its latest quarterly earnings update.
In 2018’s second quarter , DBS Group experienced a 10% year-on-year increase in total income (a bank’s revenue) to S$3.20 billion. Net interest income (income from borrowing-related activities) grew 18% to S$2.22 billion, driven by an improvement in net interest margin and loan volume growth. Meanwhile, net fee income increased 11% to S$706 million, led by growth in the wealth management and cards businesses. As a result, DBS Group’s net profit jumped 18% to S$1.33 billion. DBS Group also declared an interim dividend of S$0.60 per share, up 82% from the dividend of S$0.30 per share seen a year ago.
DBS Group’s CEO, Piyush Gupta, said in the bank’s latest earnings update that “the region’s prospects remain intact,” despite the presence of “gathering clouds.” He added that the region’s prospects should enable DBS Group to “continue capturing growth opportunities and generating stronger shareholder returns in the coming quarters.”
The last company is Thai Beverage, a conglomerate with four different business segments, namely, Spirits, Beer, Food, and Beverages. In its latest earnings update for the quarter ended 30 June 2018, Thai Beverage reported that its revenue was up 34.1% year-on-year to THB 60.7 billion, with all its segments, except Spirits, experiencing year-on-year growth in revenue. But, Thai Beverage’s net profit dropped by 56.5% to THB 6.6 billion despite the higher revenue. Excluding one off items, net profit would have declined by only 1.4% instead.
As of 30 June 2018, the company had THB 235.3 billion in total debt, and THB 13.0 billion in cash and cash equivalents, translating to a net debt position of THB 222.2 billion. In contrast, at the end of June 2017, the company had THB 38.5 billion in net debt while at end-March 2018, it had a net debt position of THB 214.1 billion.
In its latest earnings update, Thai Beverage also shared its observations on the conditions of its market:
“During April 2018 – June 2018, the Thai economy was driven mainly by exports and tourism sector. Public spending and private investment have also expanded. Meanwhile, headline inflation increased from previous quarter because of an increase in energy price.
Household income was likely to recover but household expenditure mostly came from high income household, while the purchasing power of middle to low-income people remain weak, although the income levels of some farmers in certain regions did improve. As such, private consumption by households in Bangkok and its vicinities has increased, while spending in other regions has slow down.
Household debt has risen significantly and remains at high levels, thereby pressuring the consumers to be even more cautious with their spending. Given these Thai economic fundamentals, the domestic beverage industry continued to face challenges during the quarter.”
So there you go, three beaten-down shares that may outperform the market over the longer term. Nevertheless, the information presented here is by no means a recommendation to take any action on the shares 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. The Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for DBS Group.