Singpost – Debt and Cash

I was analyzing Singpost a few days back and while analyzing, I learnt something about net cash and net debt that I was not fully aware of before. When I saw companies with huge debt previously, I merely brushed them off without doing a thorough analysis to learn more about them. Now that I have done an analysis on such a company with a proper Excel spreadsheet, I have realised some new things.

Singpost has a long-term debt of $502.977 million against a net profit of $165.741 million as of FY2010. Their cash and cash equivalents on their balance sheet was $390.220 million. By deducting their long-term debt and cash, we have a net debt of $112.757 million. Their long-term debt comprises of $200 million 10-year notes that they released in March 2010. I was wondering why are they taking up so much of debt. I could not find any news about any imminent investments by Singpost. Is the debt to be used to pay their dividends that they have consistently been paying (a ridiculous move!) or are they looking to buy up smaller overseas logistics companies? I don’t really know. Maybe someone can shed some light on this.

In FY2004, their dividends paid in total was $319.988 million. Their payout ratio was a whooping 307%! This figure is much more than their cashflow, net profit or cash in hand, so I’m wondering where they got the money from to pay so much dividends (anyone knows how this works?). Furthermore, Singpost has always been in a net debt position rather than a net cash position that value investors prefer.

Some things I like about Singpost is that their net profit margin is very high and they have lots of free cash flow with low CAPEX.

I’m also going to re-read some investment books that I read long time ago to reinforce the theories on how to thoroughly analyse companies that throw up funny situations. I don’t have any accounting background so from books are where I learn the accounting principles from. When I re-read, statements and ideas that didn’t warrant my attention previously will be reinforced.

Hopefully, I have analysed Singpost correctly and if seasoned value investors spot any mistakes, do let me know so that I can learn from it as well.

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7 thoughts on “Singpost – Debt and Cash

  1. A possible reason is SingPost is looking at buying back the $300m bond it had issued in 2004. Assuming that the 2004 is brought back at surface value, singpost will stand to save about $2mil per year. (minus coupon to be paid for the 200mil bond).

  2. Hi FFN,

    Net profit (hence net profit margin) is high because of the leveraged position. Their debts are high, hence the profits are inflated, so to speak. I wouldn’t be looking at the net profits for singpost.

    For stable companies with predictable cashflow, it’ll be better to look at the free cash flow generated per yield. Can even do a DCF analysis to determine the value…you’ll find that it’ll be roughly around 1.20.

    I just sold singpost recently after a short run up…hoping to get it back when it hits $1 or 0.9x to get a yield in excess of 6-7%.

    To answer your question on companies being in net debt position, I think it pays to look at telcos (e.g. starhub) too. Some companies have business models that involve putting in a lot of initial capital before the first drop of cash flows in. I think singpost belongs to this kind too.

  3. Hi FFN,

    Oh, I didn’t mean free cashflow yield. But if you want to find free cash flow yield, you find the free cash flow per share, then divide by the price that you bought, that will give you the freecashflow yield (i think…since i don’t use it, haha).

    6-7% is based on their dividend per annum of $0.0625 when you buy it at $0.90 to $1, you’ll get a yield of 6.25% to 6.94% yield per annum.

    Can have a look at my valuation…but I did it so long ago…can’t remember much already, haha

    http://bullythebear.blogspot.com/2008/02/sneak-preview.html

  4. Hi LP,

    If their dividend payout will be stable in years to come (due to business and cashflow stability), isn’t it better to keep the stock regardless of their DCF valuation, if one bought the stock at around 80 cents? Keeping in mind that a higher dividend divided by ur purchase price will give a higher dividend yield than current market yield. This is not what I follow but just thought of.

    Personally, I would look if the dividends given by a company is stable and increasing yearly. They must have future growth to fuel dividend increments. Dividends is only one of the many criteria I look at. I also do a DCF and purchase at 25% margin of safety. Once I buy and the price hits intrinsic value, I would sell and wait for price to come down again to re-purchase.

  5. HI FFN,

    If I had bought it at 80 cts, I wouldn’t want to dispose of it too, cos the yield is too good. Unfortunately, I do not have it at that price.

    I had bought several batches but had sold one batch recently at 1.13, having bought at 1.18. The yield is okay but not fantastic. I sold it based on charts, so I would get it back again when it’s $1 or 0.9x again.

    Growth for singpost is not that fantastic…highly dependent on their overseas venture.

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