SPH & Comfort Delgro

Since the heavy selling in the beginning of the last week following by a strong rebound towards the end of the week, SPH seemed to have stabilized and moved up a little in the last 5 trading days. It appeared to have attained a respite after dropping relentlessly in the past few months. In fact, it had gained about 5% from its low at the close yesterday. Perhaps, the worst had passed. Hopefully, this can last until at least the release of the quarter results in October. As the price of the stock fell, its value began to emerge. So it had enabled me to take a very small position after having sold down all my holdings more than1½ years ago. I did not purchase at the lowest point, but at this price, it should have discounted a lot of bad news. Fundamentally, nothing has changed. It is still a sunset industry and therefore my position should not be big. Have to trust the new management to stabilize the share price. I may consider buying more in future, but I am in no hurry to do so for now.

 

In fact, it appeared that the market attention has been shifted from SPH to Comfort-Delgro (CDG). In the last few days, CDG share price fell below $2 for the first time in 3 years. The fall was relentless especially in the first few days of the week, following the news that there could be an exodus of as many as 2,000 drivers from Comfort-Delgro to its aggressive competitor, Grab. Even the recent release of the tender results for operating the Thomson-East Coast Line (TEL) went to SMRT. It was one bad news after another. How long will the onslaught last? Nobody knows for sure. Hopefully it is near as well. 

Meanwhile CDG’s partner, Uber, is still grappling with several concurrent problems that happened in different parts of the world. It is unlikely that CDG and Uber are able to find solutions to arrest this price fall as yet. To date, the funding for Grab seemed endless, and this could remain a long-term threat for CDG. So, for round 1, it appeared that Grab is a clear winner for now.

SPH and CDG are both recession-proof stocks. Unfortunately, they are not technology-proof.

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

SPH – At its lowest for now?

When a spring is hammered very hard, the spring back tends to be very sharp. This is probably the best description for SPH this week.

In the last few days, most of the news or discussions related to this stock appeared to be bad, or at best, neutral. Being a by-stander watching from the sideline, it appeared to me that nobody seemed to have anything good to say about this stock. Indeed, it was hammered very hard for the first 3 days of the week hitting a low of $2.54 per share on Tuesday and Wednesday. In the last two days, however, it seemed to have rebounded quite strongly to close at $2.68 by Friday, though it is still lower than the last week’s close at $2.74. Perhaps, these were some opportunistic purchases made by contrarians. After all, it SPH has never experienced this low except during the global financial crisis in 2008/2009.

 

For the last 5 quarters or so, most of the news related to the stock were generally not positive. Pessimism over this stock grew in every release of quarterly results. Perhaps, the sell down this week was in anticipation of the poor results for the coming quarter as well. So if the quarterly result is not as bad as expected, then maybe we can expect a small price re-bound. (I say small because SPH’s economic moat is not strong at this moment for a significant turnaround) Of course, the other way also holds true. If the result is worse than expected, then perhaps we should expect a further sell down.

    

(This was the abstract taken from a Facebook post in April 2016 for past students. At the time of writing the Facebook post, things were still not as bad. So the expectation was that it probably should stabilize at around $3.70. News turned out to be very bad for the next 5 quarters. Yesterday, the share price closed at $2.68.)

Here is the dilemma. It has been a happy situation to have unloaded all my SPH stocks in anticipation that SPH would face hard times ahead. It has been too heavily dependent on the print business. Since then, I was on a stand-by mode, waiting to buy them back at a lower price. It should not just centres itself around the print business. It has to lay out a sustaining business proposal on the table before the share price can turn up convincingly. Now, with the bad news already significantly discounted in the share price, it may be the time to re-consider buying some back as ‘insurance’ in case it really made a turnaround or at least stabilized after more than a year of battering. Hopefully, it is at least a breather for now. It had lost one-third its value from an average price of about $4. For all we know, the share price always lead the actual company performance. So buying back may be a good idea if we believe that something magical can happen in the future. Let us see what happens in the next few weeks.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

 

 

Value investing – is it wise to stay in cash or remain invested?

I read in a recent article that a value investor has now holding mostly cash. Over the past few years, he probably had made some money. He mentioned that he has already divested out of stocks and stay mainly in cash for the past two years.  In all likelihood, he is timing that there will be a market crash or at least a major correction not too far ahead perhaps in a matter of 1-2 years.  In fact, he did mention that he will pick up some good stocks when the market crashes. Now the question is – should one cash-in or should one to continue to remain invested sitting on unrealized profit even after a good run. The chart below showed that many stock markets had a good run in the last 5 years.

 

A few possible scenarios could happen in the next 1-2 years.

(a)     If the market did really crash or undergoes a huge correction

In this case, he will be very glad that he had timed the market correctly and was able to pick up some good stocks and earned a difference between his higher sale position and his lower purchase position.

(b)   If the market continue to advance

In this case, he is likely to regret his action for selling ‘too early’. He is unlikely to buy at higher price any time soon and will be stuck with cash for a total period of 3-4 years since he had already cashed out. Given that he is a ‘value investor’ probably meant that he no longer saw value in stocks and decided to get out of them. Certainly, he would not buy the stocks when the prices of those stocks went up even higher unless he has ascertained that the fundamentals of the stocks that he had sold have changed for the better.   

 

(c)    If the market moved sideways or even in a gradual decline

Initially, he is likely to continue to wait in hope to get a ‘better price’ for his stocks. There probably would come to a time when he lose his patience and start to dabble in stocks again. As one of the readers rightly pointed out, it is actually quite ‘expensive’ to stay in cash in hope time the market. The opportunity cost lost in collecting dividends for the last few years could have more than off-set the gain even though he may manage to sell at a higher price and buy them back at a lower price. In timing a market, we need to be two time right – both in the buy and sell, in order to gain from it. 

 

Of course, if one is possible to see what is ahead of us, in every boom and bust of the stock market, then market timing is the best strategy. But when things are generally uncertain, the time in the market appeared to be a better strategy than timing the market. The simple logical reason to that is that stock markets generally go up higher in the long run. Just simply by being a passive arm-chair investor could have helped us make a huge profit as the market tends to go up in the long run. That was actually endorsed by Warren Buffet who mentioned that one should buy an S&P low cost index fund consistently to gain from it in the long run.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

CPF – Crossing 55

I bumped into a friend a few weeks ago. He had just passed an important life milestone – the double digit 55. For most of us, especially those who have been working most of the time, hitting this milestone is akin to getting the coveted key to a treasure chest – the CPF. After all, most of us have been working hard all these years and, certainly, would look forward to unlock this ‘can-see-cannot-touch’ national forced saving scheme.

Apart from setting aside a full Retirement sum of $166k, he still has more than $83k to enable him to go for the Enhanced Retirement Scheme (ERS) for which he would enjoy a monthly payout of about $1,920 for the rest of his life after he crosses the age of 65. He decided to go for that. But here is in interesting irony. Instead of drawing down from Ordinary Account (OA) and Special Account (SA), he decided to join the ERS by topping his retirement account with cold hard cash, drawn down from a commercial bank. Meanwhile, the balance amount after deducting the full retirement sum was still left in the CPF under the ordinary and special account attracting 2.5% and 4% respectively.

The above episode invites two camps of thoughts. The first, being spender camp, would believe this is one of the stupid course of action to take. The general belief is that they have worked hard and have accumulated a huge forced saving all these years. Reaching 55 is a god-send and, surely, they cannot wait to unlock the piggy bank that has been stowed away for many, many years. The common excuse is that they are almost at the tail-end of the life-stage and if they do not use it, then when? The general motto is ‘enjoy it while you can’. The second camp is the saver camp. This is the group that believes in delayed gratification. They believe in holding their savings as long as possible so that they can enjoy the tastier fruit in the later part of their life once they crossed 65.

 

After evaluating two options, perhaps the topping up with cash may not be a bad idea if we can afford it. It may not look like a wise decision at the first thought, but coming from a difficult life when even $1 was a treasure during my childhood days, I thought it was not a bad idea too. While a big chunk is being stowed away in the ERS to secure our livelihood until death, the remainder in the CPF would attract a higher interest of 2.5% in the OA and 4% in the SA. It is an excellent place for putting our money for emergency, and yet able to secure a high interest yield while our funds lay idle. It is certainly better than putting the emergency cash in a commercial bank attracting less than 1% interest. This is after all, emergency money and is not supposed to be touched unless really necessary. By so doing, it would help free up the savings in commercial banks for other investments. Furthermore, even if the fund is earmarked for investments some time down the road, it is still a good place to park our funds in view that most of the stock markets have already touched their all-time highs. Not a bad idea at all!

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Is a $20 stock expensive and a $2 stock cheap?

We still see and hear people talk about a stock being expensive because the share price is high. It may be true but only to a certain extent. It depends on the situation. For example, when DBS share price hit $20, there were people mentioning that the share price of DBS was too expensive. Instead, they chose to buy other company stocks instead. This can be a naïve action to take because it may mean that highly-priced stocks (or generally the blue-chips) never get into their portfolio. A lot of opportunities could have been missed! That may also implicitly means that these people are holding a lot of low price penny stocks or, at best, held some high yield stocks like REITs, which are not so ‘highly-priced’. But if we look back into the price history for the past several years, one would have found that, generally, it is the blue-chip stocks that had made significant price gains. They gained from strength to strength. On the other hand, those stocks that were left behind were the low-price penny stocks and low-performing ones. In fact, some of them have been under long-term suspension and cannot be traded at all. To summarize it all, despite the bull market in the recent years, one may not able to enjoy a significant upside if he holds on the belief that high-price stocks are expensive stocks. Moreover, the share-consolidation exercise 2-3 years ago to meet the minimum trading price (MTP) criterion could have even made the situation worse. The share price of many penny stocks gets even lower after the consolidation, ending up in extremely low price and illiquid situation. This really is value-destruction. On the other hand, we now know that DBS share price has reached more than $22 or 10% even if we had bought it at $20 per share. Of course, I do not mean to say that buying high-price blue-chip is a sure bet to being a winner in the stock market. What I meant is that by viewing high-price share as expensive purchases would unconsciously prevent us from buying into them and probably lost out some investing opportunities.

Actually a high-price stock is not necessary an expensive stock. By the same argument, a very low-price stock is not necessary cheap either. This has been explained in my book “Building wealth together through stocks” from page 110 to page 114. In fact a high price stock of say $20 per share can be a lot cheaper than another very affordable stock trading at $2 per share. Instead of looking at the share price alone, we should look at a company’s market capitalization (or MktCap in short). It is the product of the shares outstanding and the share price. In a very practical sense, it is the dollar value of the company of how the market, as a whole, evaluates it. In other words, it is the ‘market price-tag’ of the company. DBS, for example, has 2,562,052,009 shares outstanding on July 2017. Given the share trading price closing today, 7 Aug, at $21.15, the MktCap is S$54.19 billion. This is the market value of the bank. This means if you have $54.19billion, you can theoretically buy up all the outstanding shares. However, this only exists in theory because once you start to buy the shares in the open market, the float gets smaller and the price will shoot up due to its market liquidity. Of course, this is also barring the need to carry out a general takeover exercise once we held beyond a certain threshold.

Let’s say for some reasons DBS wanted to make the share price affordable to around $2 instead of the current price of around $21.15. (Note: making the share price affordable does not mean making it cheap) The management simply cannot depress the share price by a stroke of the magic wand without doing something else. To bring it down to a share price of $2 from about $20, the bank has to introduce a lot of shares into the market. This, essentially, involves a share split of breaking down one share into 10 shares in order to bring the share price to that level. This means that shares outstanding would be magnified by 10 times to 25,620,520,090. The market-value of the DBS simply cannot evaporate overnight. The market, as a whole, still recognizes that DBS has a market value of a $54.19 billion unless the bank performed so badly that shareholders started to sell out the shares over time. Apart from the arduous administrative work involving existing shareholders, there is absolutely not much incentive for the directors to do share splits just to make shares affordable. If affordability is really an issue, then investors should instead buy smaller lot size instead of 1000 shares. By doing so, that should reduce the outlay from paying $21,190 to buy 1000 shares to $2,119 to buy 100 shares or the multiples of it. That essentially, was the purpose of smaller trading board lots of 100 shares instead of 1000 shares introduced by SGX about 2 years ago. In fact, in more sophisticated stock exchange like the NYSE, we can even trade just one share instead of a board lot of 100 shares.

Essentially, the above also helps explain why OCBC is trading at around $11 per share and is almost 50% of that of DBS on per share basis. Otherwise, in no time OCBC share price would play catch up and go higher to reach to $21 or it could be DBS share price sinks to $11.21 to match with OCBC trading price. Certainly, that is unthinkable. For that, we shall leave to the next post.

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Execution strategy: Sell & buy back

In the talk organized by InvestingNote a few weeks ago, we shared several guiding principles when we buy or sell our stocks. Ideally, when we buy into a stock we hope that the moment when we buy into it, the share price immediately rises and stays for a long time, better still, forever. This means that our stock has appreciated and provides us a good margin of safety. The other part of the return is the recurring income that comes in the form of dividends year after year. So basically, we enjoy both the capital appreciation and dividends. This is an ideal situation. It is akin to buying a bungalow that cost $50,000 in the 60s or 70s and the valuation is now at $25million. The recurring income comes in the form of rentals. This is known as the buy-and-hold-strategy, and was famously used by long-term investors like Warren Buffet and John Templeton.

There are, however, situations that are not viable to hold a stock any longer because the underlying fundamentals have eroded with no immediate solution in sight. A good example is the SPH. In the 90s and the start of the new millennium, SPH had been a good stock. It was a near-monopoly in the print business. Hence, it made sense to buy the stock at a reasonably good price and held it long term to take advantage of the dividends that were distributed year after year. But the inauguration of the internet changed the rules of the whole game. Customers now have a choice – either to continue to read the hard printed copy that comes one to two days late or to browse through the internet in search of immediate news. It is so powerful that many newspaper and magazine printers were pushed to the brink of bankruptcies. While we continue to like the stock, we probably have no choice but to change our tact to a sell-and-buy-back-later execution strategy.

By selling into strength and buying back later, it helps us lower of the average cost for the shares. Even if we decide not to buy back the stock any more, we are effectively enjoying a saving that would have otherwise eroded with time. Let me use an actual scenario of a person whom I know very, very, very well. He had 6,000 SPH shares mid-2016.

The share price was dropping very quickly by mid-2016. He was left with 6,000 shares at that time. Feeling that it no longer made sense to hold the shares any longer, he decided to let go of his holding over a period of three months. The proceeds after taking into account of the brokerage and other fees come to about $23,589.61. Hypothetically, if he were to buy back the same quantity of stock yesterday, the amount that he had to pay would be $17,949.73. Deducting further of the loss of dividends of $1,080 which he did not collect as he had sold the shares, he still can make a gain of $4,559.88. This is equivalent to a gain of at least 4 years of dividends without losing out the shareholding instead of losing out one year of dividends originally. In summary, we need to adapt the right buy/sell strategies for our stocks. Buy-and-hold strategy may not always work.

 

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Comfort Delgro

Of late, Comfort-Delgro (CDG), together with some stocks like SPH and Noble, were in the limelight. Obviously, a sea of pessimism has been haunting the stock in the last few weeks. Today, its share price is $2.28. It had broken through the ‘very strong’ support level that many traders described as between $2.37 and $2.40. The strong support had lived to its name for several months, but still it was finally broken. Frankly, there has been a swing in the sentiment.

For the past two years in 2015 and 2016, the market appeared to be extremely optimistic over this stock. It started off with the falling fuel price in end 2014. Then came a revision of transport fares and, finally, the news on LTA taking over of operating assets from the transport operators in mid-2016. Good news had obviously fueled the market to become overly excited and the share price of CDG was pushed above $3.00 in 2015. At the price of $3.00 the PE ranged between 20 and 23 from 2014 to 2016 and was trading between 2 and 2.5 above book value. It is not exactly expensive (of course without the luxury of comparing against similar companies). Perhaps, its growth potential has prompted many analysts to be more optimistic with buy calls above $3. Even in the year 2016, when the market price was gradually sinking, many analysts were still recommending buy calls on the stock with target prices above $3.00.

Obviously, there was too much good news feeding into the stock price. Frankly, I felt alone when everyone was optimistic, but that gave me pockets of opportunities to scale down my CDG holdings in the Q3 and Q4 2015. It had a good run since mid-2012 from around $1.50 per share. In fact, I had pointed out to past students be aware of the threat from Uber and Grab almost 2 years ago amidst the widespread optimism over this stock. It was difficult to know the extent of the damage it can cause on the taxi services. My initial assessment was also that there could be some kind of government intervention, but it appeared to be almost none as we know now.

In fact, even in 2016 when the share price was slowly sinking, most analysts were still recommending buys with target prices above $3.00. The discomfort prompted me again to write the blog in May last year :

 http://blog.bpwlc.com.sg/feeling-uncomfortable-about-comfort-delgro.

In hindsight, I am happy that I was able to reduce my shareholdings at a good price. With most of the shares bought before 2012, and I had sold about one-third of my shareholding above $3.00, I have a relatively comfortable margin of safety even at this on-going price (today close at $2.28). However, I still regretted that I did not follow through my conviction to sell 50% of my holdings. My expectation of the government intervention and a special dividend for the sale of assets to LTA did not materialize. Also, perhaps, I have emotional attachment to this stock. Its predecessor, SBS Bus, was my first stock that I ever purchased and sold at more than 100% profit in matter of 2 years more than 20 years ago. This experience had actually set me off in this adventurous stock investing journey.      

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Technology destroyed some traditional businesses (3): Keppel Corp & Sembcorp Marine

The share price of Keppel Corp ended today at $6.42. It has lost about 35%-40% its steady state value of about $10 per share 3-4 years ago.  Everyone knows that the reason for this was due to the collapse of the oil price from more than $100 at around mid-2014 to less than $30 per barrel by January 2016. In fact, traditionally, Keppel share price is closely tied to the price of crude oil. Its arch rival, Sembcorp Marine, another public-listed company on the Singapore Stock Exchange (SGX) also exhibited the same behaviour. When the oil price hit close to $150 per barrel just before the global financial crisis, Keppel share price and Sembcorp Marine went above $14 and $6 respectively. When the oil price crashed during the global financial crisis, the share price of Keppel Corp and Sembcorp Maine went south hitting below $4 and $1.50 respectively. When the oil price went up again to US$90-$100 per barrel between mid-2012 to mid-2014, their share price again swung up. This time, Keppel Corp share price held steadier at around $10, while Sembcorp Marine share price exhibited more volatility as it has other marine related segments that were also going through a very trying period. But when the oil price crashed once again from more than $100 in mid-2014 to less than $30 in January 2016, we again witnessed the crash in the share price of Keppel Corp from above $10 to less than $5 and that of Sembcorp Marine from more than $4 to less than $1.50 per share. At the moment, the oil price is about $45 per barrel and share price of Keppel Corp and Sembcorp Marine have since advanced respectively to above $6 and $1.60 per share. To sum up it up, the stock prices of these two companies bear very close co-relation with the crude oil price even to this very day.

Unfortunately, for Keppel Corp, Sembcorp Marine together with about 20 or so offshore marine related companies, they have no control over the oil price. In other words, these companies are price takers. Their businesses are tied to the price of oil, but they have no influence over it. Then, of course, this begs the next question – when can we expect the oil price to go back to its glory days of more than $100 per barrel? Frankly, I do not know as I do not have a crystal ball to tell the future. It also means that many others out there do not know the answer as well. As I had mentioned in my recent talk organized by InvestingNote recently, in order to be a big winner in stocks we need to be ahead of the others on the winning side of the curve.  This means that we have to look beyond the present situation and make a calculated guess of the future using the present data.  We may be right, we may be wrong but a calculated guess substantiated with some critical metrics and data would help us reduce the risk of being at the wrong side of the curve than not to do any homework at all.

 

As we know, oil prices, just like prices of any other commodities, depends on its demand and supply.  On the demand side, it takes a huge global demand to push up the price of oil. It can be a long-drawn war or a huge industrialization leap. All these did not take place in the last ten years. Huge oil hoarding can complicate the demand scenario as well, but ultimately there is still a need for real demand in order to push up oil prices over a longer period. Even with the Chinese economy normalizing after the global financial crisis, the oil price did not seem to show any significant change. Right now, we have gone past the industrial age in the last century and entered into the information age. So, it also means that advancement in economies is not driven so much by oil demand.  That said, it does not mean that the total global demand for oil has dropped compared to that of 20-30 years ago. On the contrary, I think global demand could have increased during all these years as more economies with huge population size opened up. What created a ceiling in the oil price lies more likely on the supply side. Over the past 30 years or so, a lot of progress has been made in harnessing alternative energies. That takes a chunk off the demand for fossil fuel.  And unlike 20-30 years ago, when crude oil is extracted either via oil wells onshore or via oil rigs offshore, a new extraction technique has begun to muscle its way into the oil extraction scene. Shale oil extraction, which we have not heard about 20 years ago, is slowly elbowing out the more expensive offshore extraction using oil rigs. In fact, the technological advancement in shale oil extraction has made it gradually cheaper. Just 10 years ago, the break even cost was between $65 and $70 per barrel, and, by now, if the oil price reaches $60 per barrel or even lower, it would have made shale oil a flourishing trade. Franking speaking, oil shale technology is not really a modern technique. The exploration was as early as in the 1980s, but the environmental issues and the low oil price during the 1990s made it temporarily shelved. It was then re-harnessed when the oil price started to climb more than 10 years ago. In fact, this oil extraction technique has made US, the world largest crude oil user, to reverse from a net oil importer to a net oil exporter. This could also be the explanation for the glut situation recently. As such, super oil tankers have to be used to store the crude oil and park offshore in hope of better oil price in the future.

 

Perhaps, the share prices of Keppel Corp and Sembcorp Marine as well as the peripheral companies may have met their lows recently, it cannot be said that their share price would drastically go up anytime soon. Unless the demand or supply situation changes so drastically beyond our imagination in the foreseeable future, it is difficult to envisage a huge demand for oil rigs. Their share prices may continue oscillate according to the oil price, but big leaps in their share price still depend on the how convincing is the demand is for oil rigs. As a matter of opinion, it may not happen in the next few months or even the next 1-2 years down the road. Hopefully, I am wrong coming from an investor’s point or view, but right from a consumer’s point of view.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

 

Technology destroyed some traditional businesses (2): Comfort Delgro

Until a few years ago, Comfort Delgro has been in a very comfortable position. The business model that has been used in Singapore was able to be duplicated and adapted locally in other important cities in Australia, the United Kingdom (UK), China, Vietnam and Malaysia. The whole business centred round the traditional land transport operations and provided the company with various sources of income. The share price doubled year from mid-2012 of around $1.50 to more than $3 per share in mid-2015. Some might say that that was not exactly a star performer, but I would say that the stock performance was great in view of its ‘old-economy’, almost recession proof, traditional land transport business. It is not easy to find a traditional business whose share price that could double in a matter of three years. With the euro crisis brewing at that time, most blue chips stocks were not really performing following the run up after the global financial crisis. So given the backdrop of the unexciting STI at that time, Comfort Delgro stood up among blue-chips stocks. It was the top performing stock in year 2015.

Now the situation has turned. Rental cars Uber and Grab have been making headlines of late. They took many traditional taxi businesses in many cities by storm with their aggressive pricing policies even though the companies are still incurring losses. They seemed determined to break out the traditional taxi business at all cost. The situation in Singapore is no exception. Comfort Delgro, being the biggest taxi operator in Singapore is obviously the victim of this onslaught. By today, Comfort Delgro share price has just sunk passed the $2.37 level, which has been a very strong support threshold for several months. The situation is not all pleasant for the Comfort Delgro at the moment.

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Technology destroyed some traditional businesses (1): SPH

By now, many would have noted that SPH share price has been on a decline from $4, slightly more than a year ago.  It has not been this low since the global financial crisis when it touched $2.32 on 12 March 2009, which coincided with the low of the Straits Times lndex (STI). Following the crisis, it had been oscillating at around $4 for a long, long time before the recent decline to its current price at around $3.25. In fact, since the share split of 1:5 in 2004, the share price has not really enjoyed any strong upside although investors had been lavished with generally good dividends in the past.

In fact, SPH is not the only victim of the technology onslaught. Newsweek, Washington Post, Financial Times, Reader’s Digest and many national newspapers suffered declining sales volume as well.  Technology, in particular the internet, had swept across the globe at such a huge pace that it wiped out many traditional news and printed media businesses. Readers are no longer happy to receive news 1-2 days after it happened, not even hours. We are now talking about minutes or even seconds. Financial market for one is very unforgiving as far as the speed of news is concerned. The news that appeared in print today was already a history that had already moved the market. Certainly, the financial market players are too impatient to wait for the print to reach them before they reacted. Look at US presidency election, the BREXIT, British election, the market had already reacted even before the news were casted in print. By the time the news appeared on the dailies, many snippets would have already splashed all over the internet. Just a simple search through a search engine, one would be able to pick up at least 10 pieces of news stories on the first page of the engine search.

Personally, I think that the management saw it coming at that time, and that was why they decided to sell several properties into SPH REIT in mid-2013. By so doing, it hoped that it can earn a ‘passive income’ as a sponsor and a major shareholder of this REIT. Unfortunately, the rental income is not sufficient to offset the decline in the print business. And this could continue to be so for a long time to come. To be straight to the point, the internet is not going to go away any time soon. In fact, it will definitely not go away unless it is displaced by another faster and more convenient transmission means. That said, it is a long-term threat unless SPH is able to side-step it by finding another growth business.

To be fair, I would think that the management has been doing their best to maintain shareholder’s value. The share price could have declined even more steeply had it not been for the high dividends that were distributed in the last few years. Unfortunately, this is an encroaching external threat that is difficult to defend against, unless they do not want to be in the business at all or to lessen the blow by finding another lucrative business. The final consequence, unfortunately, is an ever-declining share prices, a deep cut in future dividends or both.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy. Analyses of some individual stocks can be found in bpwlc.usefedora.com. Registration is free.