Thursday, January 14, 2010

Analysis of SPH in June 2009

Not too long ago, I was contemplating the creation of a website using Wiki technology to create a community to contribute fundamental analysis to a site in Singapore for all investors. The is to start with a simple report and then get help from the community to improve the analysis.

Here was my proposed stub for the analysis of SPH.

i) Do let me know if there were any flaws in the analysis.
ii) If there is interest in a combined effort to evaluate the fundamentals of all STI stocks, do comment on this article as well.

Note : This information is dated and does not constitute a recommendation to buy or sell a stock. I do have vested interest in SPH and saw the stock climb since I bought after making this analysis on my own.

Singapore Press Holdings Limited Analysis

SWOT Analysis

SPH's strengths is in its monopoly on the local newspaper scene with the publication of the Strait Times. Media is highly regulated in Singapore which makes it a sustainable barrier to entry in this industry. SPH is also involved in telecommunications and owns two major pieces of property in Orchard road. Investors can take advantage of steady earnings from the media and some growth from its telecommunications and property stakes.

SPH's weakness stem from move made by companies to move their advertising online. Print media and TV advertising is slowly losing its appeal and international newspapers are seeing their finances deteriorating as a result of this.

SPH's future potential lies with the Internet with websites like Stomp. The full potential of social media has not been realized by the local press and SPH should look into seriously experimenting with this new medium to connect Singaporeans together.

SPH's biggest threat is that liberal Singaporeans will turn to alternative sources to get their news. Already, blog aggregators like Singapore daily have a steady traffic of viewers who want an alternative to state controlled information in Singapore. These threats are currently negligible and will not have much impact on financials at the moment.

Relative Market Valuation

Relative market valuation is graded based on the position of the metrics relative to other stocks in the STI index. An “A” grade implies the top 80th percentile, A “B” grade implies the 20th - 60th percentile and a C grade implies the bottom 20% percentile.

Market ratios are taken from DBS Equity Research 2nd June 2009

Ratios Value
P/E 11.2 (B)
P/CF 9.8 (B)
P/BV 2.3 (B)
Current Yield 8.80% (A)

Dividend Discount Model

SPH is a steady blue chip defensive stock, when discounting dividends we can treat the cash flow as one delivered by a government bond. We adjust the risk free rate by 1% to account for the slightly risky proposition of buying equities. We also make a very conservative estimate that SPH will not grow at all in perpetuity as in 2008 since SPH has been giving almost all of its retained earnings out as dividends.

Assuming discount rate, r to be (10-year SGS long+1%) bond

r = 2.74% + 1% = 3.74%

Dividends in 2008 = $0.18

Projected dividends in 2009 ( Conservative ) = $0.15

Intrinsic cost per share = D(1+g) / (r - g)

Intrinsic value assuming a growth rate,g of 0 = $0.15 / 0.0374 = $4.01

Free-cash Flow discount Model

Using the same assumptions, we can derive the intrinsic value of the share by looking at the SPH Free cash flow model.

Cash Flow from operations = $457 million

Capital Expenses = $55 million

Net Borrowing = $0

Free Cash flow to Equity = Cash Flow from operations – Investment in fixed capital + Net Borrowing

= $402 million or $0.253 / share

Once again, assuming no growth of Free cash flow to equity,

Intrinsic cost per share = FCFE(1+g)/ (r – g) = $6.76

Residual income method

The residual income method adopts a different approach from the rest in that it uses book value and return on equity to derive the instrinsic value of a share. This approach works for shares which have negative earnings, cash flow or does not pay out dividends.

Book Value per share taken from analyst report = $1.319

Return on Equity = Earnings per share / Current price = $0.276 / $3.10 = 8.9%

Long term growth rate = 0%

Intrisic value per share = Book Value + Book Value (ROE – r ) / (r – g ) = $1.1319 + (0.089 – 0.0374) $1.1319 / 0.0374 = $2.69


Based on analysis on this page, would be a good investment for its high yields and monopolistic position in Singapore. Models of cash flow show that the intrinsic value of the stock is high compared to current price. Residual income method projected the lowest intrinsic for stock price but the model is more appropriate for companies are losing money.


Growth Portoflio = Neutral
Income Portfolio = Very appropriate
Speculative Portfolio = Not appropriate
Diversification Portfolio = Neutral


Xizor2000 said...

Closed at 3.82 today. I usually do some TA before I buy a stock. There's still some up-room (but not much). I admit I am not very good at TA, but from what I can see my entry level would be 3.57 ~ 3.60.

Simply put... I missed the boat and now gotta wait.

Arthur said...


From your FCF model, you wrote:

Cash Flow from operations = $457 million

Capital Expenses = $55 million

May I know how you gotten the CFO figure?


The CFO in 2009 was (128.1) and CAPEX was (75.2)


Christopher Ng Wai Chung said...


Your number is definitely correct. I did this sometime in the middle of 2009 so did not have the full picture for that year yet. I took some CFO projections from an analyst report and tried to derive the prices based on those figures.

I could not remember the report I used to generate the Wiki stub but if you check DBS Vickers report on SPH sometime in May-June 2009 period, the CFO projection is within region of about $400 - 500 million.

Its amazing how they differ in hindsight when the real results get out. None of them could see the large negative changes in working capital when they did their projections, I guess.