I remember I had informed students in the Facebook closed group in mid-2015 that Comfort-Delgro (CD) has probably plateau after pricing all the good news. Recently, I repeated once more on 13 April 2015 when the share price hit $2.91. On the very day, the STI moved up 75 points and following an announcement on additional requirements for rental cars, such as Uber and Grab-taxi. In the long run, rental car services can pose a direct threat to CD’s taxi business.
In retrospect, crossing $3.00 per share had been a great feat in view that it was an essential service stock. The share price was only around $1.50 per share 4 years ago. Up until 2015, it had been increasing year after year for 4 years running. Prior to that, the share price had been quite sluggish, for it was an ‘old-economy’ unexciting stock. The SMRT, on the other hand, seemed to be enjoying a greater fanfare as new lines were built. (However, that cannot be said of SMRT share price during that time.) Fundamentally, Comfort-Delgro is rock-solid compared to the SMRT. I like the stock very much. Just based purely on its cash hoard in 2014/2015, it could have paid out all its long- & short-term loans fully without incurring a cent of debt, making it a debt-free company, and yet maintaining a status of one of the largest (if not the largest) transport company by asset in the world. On the other hand, SMRT was struggling even to this very day to make profit out of its core business, ie rail operations. SMRT managed to keep itself in the black mainly because of advertising and rental businesses. These are not their core businesses.
As the business grew quarters after quarters due to its increasing presence overseas such as China, Australia and UK, so was the share price of CD. Along with this growth story were a spat of good news in the past 2-3 years such falling oil price and the land transport sector under-going complete overhaul into a asset-light regime. This has led many analysts to become more optimistic in their approach. Some even set their target price to as high as $3.46. By the mid-2015, there were at least three analysts with target prices above $3.40, and quite a number of them projected it to be at least $3.00 per share. In the best of my memory, I was not sure if any analyst offered a ‘sell’ call as the general outlook looked rosy. Perhaps, all these analyses were based on the assumption that the existing assets will be sold to the government, and the ‘windfall’ from the sale of the assets is to be returned to the shareholders in the form of special dividends.
Taking a leaf from the lesson learnt in OSIM’s case that too much good news that feed into ever-increasing share price can make a sad ending to even a fairy tale story, I decide that I should go against the tide to sell at least some shareholding of my CD stocks. Having doubled my investments over the years, I should have a more than 50% buffer, even if the stock price kept coming down gradually. In other words, I need not sell them hurriedly. After all, it is a fairly liquid stock and good news was still feeding into the share price. It was even touted to be the best performing stock at that time. I started scaling down my CD shares in mid-2015, each time taking advantage of its short-term high. By today, it is 11 months since I made the first sell of my CD shares.
In the meantime, the oil price continued to sink and it did not bottom until February of 2016. However this had already been reflected in the share price. Perhaps, the decreasing oil price had helped CD share price to bleep slightly above $3.00 per share. Meanwhile, the news of rental cars, like Uber and Grab-taxi, was probably beginning to bite even though the CD management seemed to brush it off initially. Taxi operation in Singapore is the most lucrative business for Comfort-Delgro, and if Comfort-Delgro were to lose its market-share, its bottom line is likely get hit. That probably explained why Comfort Delgro share price hardly crossed $3.00 per share in the last two months.
Given the additional threat, even the share price of companies that provide essential services can still come under pressure, albeit a bit slower compare to high-growth stocks. That said, Comfort-Delgro is still a great company in view of its deep pockets and the management’s ability to generate multiple sources of income. When the time is right, and of course when the price is right, perhaps, it is time to take comfort again. I will not catch a falling knife for the moment.
- This article is not a recommendation or an advice to buy/sell the mentioned stocks. It is just a pure sharing with the readers of this blog.
- Note that the share price of the mentioned stock could change abruptly upwards or downwards especially with the asset-light arrangements with the transport authority. The author does not have any privy information of the company or its related matters other than those released by the company publicly.
Brennen has been investing in the stock market for 26 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.