Thursday, September 21, 2017

SPH -- A No No For Me..........

I seldom blog about stocks that I do not hold be it just purely technical analysis or value/fundamental analysis.  Days ago, a friend of mine contacted me to ask about advise of SPH, to cut loss or continue to hold.  Then again, I also came across people in forums, blogs etc showed eagerness to bargain hunt given the price has fallen so much.  Then I figured out that by blogging down why SPH is a no no investment for me (as an archive) can be served as a good learning lesson (for me) as in the future I could reference back whether my decision now is correct or incorrect.  I'm going to breakdown into 3 sections of analysis -- Technical, Valuation and Fundamental.

Technical Analysis
Can't avoid looking at chart pattern when doing technical analysis and what I'm going to do is using none other than Elliott Wave to do it.


If tracks from the low of 2009, can see wave 1,2,3,4,5 is already completed.  Though, wave 4 and wave 5 look a bit unconvincing given that wave 5 is very short but there is no rule that state that wave 5 cannot be short.  Moreover, taking the high of recent months to the low of 2009, current price is already a retracement of more than 38.2%, definitely already not part of the bull market trend since 2009.  Hence, there is enough evidence to conclude that current down is the down wave A,B,C.  The question is whether are we still in A or in C (as there is a rebound which could be B).  Based on the STI analysis I did on 19th Aug 2017 (refer here), STI is in wave 4 now.  Should STI embarks on wave 5, SPH could follow with market trend and rebound and that very lightly will be wave B, thereby forming the zig-zag pattern of wave A,B,C.  Furthermore, both Singapore and global economy still yet in recession and if recession does really come, can't see why SPH price not going down further.  If ignored the price adjustment due to dividend since 2009 till now, present price level is very near to the recession price level in 2009 (in the $2.30+ region) despite Singapore economy not in recession.  Show no convincing reasons to invest in SPH at the moment.

Valuation
With the closing price on 20th Sep 2017 of $2.63,  according to data from Stock Fact from SGX website, we have the following :-

1.  P/B Ratio = 1.266
2. PE = 21.552
3. Dividend yield = 5.36%



Total revenue, Gross Profit, Net Income and ROE all fallen y-o-y for the past 5 years.  If my memory never fail me, the total revenue especially those from the press business has fallen y-o-y since 2009.  That is to say for almost a decade, SPH business has been on a downtrend.  That is not something that is convincing enough to invest in it.  The only positive side is perhaps the dividend collected over the years was pretty much consistent and at present price, it commends a dividend yield of 5.36%.  If hoping to collect dividend to cover the vested capital, that would take at least 18 years to do that (providing dividend payout will not drop).  There are more stocks in particular S-Reits that could achieve that target in less than 18 years (a 7% yield would take less than 15 years only).  Value bargain or value trap ?

Fundamental
This is a very big topics and also the most important in deciding whether to invest or not.  I only highlight 4 of the them in the following.

1. Management Team
The CEO, head of the management team is like the captain of a ship navigating through a storm.  Without any doubts, one would want the person with that great experience to take the role.  You definitely do not want a captain whose one hand steering the wheel and the other hand holding the operation manual to navigate the ship through a storm.  SPH was established in 1984 (that is like 33 years already) by merging of 3 organizations -- The Straits Times Press, Singapore News and Publications Limited and Times Publishing Berhad.  So as to say to find people with at least 3 decades of direct experience in not that difficult.  Then you look at the recent appointment of its new CEO (and his track record prior to that) does he really fit the bill ?  I can accept the fact that the CEO could specialized in other fields but is able to use that specialization to expand the company business into that domain but is it such a case with the new CEO ?  One said those breed of people (and probably referring to himself too) is diversified trained enough to do the job (despite no direct experiences).  Is that so or is it Jack of all trades but master of none ?  I don't think I need to elaborate in great detail about the management to justify of why not investing in SPH.

2. Monopoly Business
In basic economy people would say monopolized business is good as it is price setter and it could maximize its revenue and profit.  However, to me monopolized business is a double-edged sword.  In monopoly, you will have little to no competitors and as such in time to expand you got nothing to acquire.  Moreover, in time of real trouble, you got no one to bail you out too.  Monopolized business can lead to complacency too and never have I heard of complacency is of anything positive.  Should one day SPH is in real financial trouble that required a bailout, what's the possibility of it being acquired by a foreign entity ? The sun will rise from the west if the Government allows such a scenario.  So, what's left to the bailout ?  Probably be like another SMRT, privatized by Temasek Holdings.  Something good for long time investor ?

3. Quality of Business
This could be very subjective but since investing is putting my own money in it why can't I be subjective ?  SPH is being ranked very lowly some 154th in some global index (so low and cheap that I being so ashamed to really google search for the detail).  There must be strong reason for it to be ranked so low.  SPH main business is newspaper, that is journalism.  As such, I would like to see the correct spirit of journalism -- being neutral, independent and fair in views.  Looking in particular those domestic political views (be it on reporting basis or opinions from its editors), it is very hard for me to justify it has the correct spirit of journalism.  To invest in a stock is like to invest in a business.  Do you want to invest in a business if the business does not do what you expecting it to do ?  Some might put the blame of declining revenue of the press business on the internet, social media and digital age.  Now, let get the fact straight, if you have that quality why would people want to switch to alternate sources ?

4. Diversifying in Business
It is very common to see corporations invest in other areas apart from their main business, also known as diversifying their business.  This is pretty much strategic move to expand their revenue, profit, brand name and dominant.  I absolutely have no issue with that.  However, if such diversification is to be used mainly to offset the loss of its main business unit then fundamentally, the company or the corporation is not right already.  SPH has investment interest in other areas such as broadcasting and property (perhaps also other areas which I have not been following) and the recent corporate action of investing in healthcare sector gives me an impression that the management is finding all possible means to reverse the y-o-y declining revenue.  Whether those moves going to pay off is questionable.  Another is the choice of diversification and all that very well depend on how much expertise they have in that sector for them to make the correct choice.  At the moment I can't see the rationale except in diversifying for the purpose of offsetting the declining revenue in the press business.  That is another critical point that prevent me in investing in SPH.

10 years ago, I first heard of the phase "White Elephant" being referred to SPH in the stock market community.  Then, I couldn't understand why as it is after all a blue chip.  However, now I fully understand why it is being called that by just looking at the fundamental.  Like mentioned before, investing in a stock is like investing in a business, you would like to see an improving fundamental going forward, not one that is either stagnant or in the decline.  The non-improving fundamental of SPH is not recently as it has developed over the years already (probably even longer than that) from what I see.  To put my money to bet on it given the stock price has fallen so much over the past few months, I rather save that money to put in other stocks that are more worthy.  Similarly, over the years for the same reason (fundamental reasons) I am not willing to put my money in SMRT (now being privatized), the 3 local telcos and ComfortDelGro (this is only recently since the emerging of Uber and Grab).

In investing, not losing your money unnecessary is also consider an investment gain.

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