SPH Stock Review: Should I Invest?
Updated: Mar 29, 2020
SPH (SGX: T39), also known as Singapore Press Holdings, was formed in 1984 by merging 3 newspaper companies. Today, they play an important role in combating against fake news by being a reliable source of information. Besides commonly known as a newspaper company, SPH is also involved in variety of businesses such as radio, events, supplementary classes, elderly care etc.
With a market cap of almost 3 billion, this blue chip has seen its share price fall as low as $1.73 while yielding at 6%. So, is SPH a bargain or trap? Time for some research...
Net income and free cash flow
From the chart, it appears that net income has declined from approximately 500 million to less than half the amount over the course of 10 years! After seeing this kinda earnings trend, usually I will close my browser and move onto another stock. Instead, let's maybe try to understand what went wrong and identify pitfalls.
Media revenue together with profit margin have been dropping consistently over the years. Up till now, it appears that SPH has yet to find a solution to this decline but the diversification to REITs is paying off.
Breaking down further, the problem starts to be more apparent with 40% of SPH's revenue comes from media advertisement. This means that SPH is competiting with all the advertising big boys like Facebook, Twitter, Pinterest etc. If I wanna put out ads, I would definitely prefer the big boys because of the large global audience base to have as many people to see my ads. Hence, it wouldn't make sense for me to limit to local newspaper readers which barely makes up 30% of current Singapore workforce (assuming that news readers are working adults).
Additionally, with COVID-19 disrupting the economy, revenue from advertisement would drop further as businesses would want to keep as much cash by cutting non-essential expenditures.
Although SPH's digital advertising has grown by 6% in 2019, it will take several years for it to replace media ads.
SPH's current and D/E ratios are at 1.14 and 0.45 which means they would be able to pay both their short and long term obligations. However, considering that recession is round the corner, lower debt would be more preferable as a greater safety margin.
Reviewing core business
Though the number of printed papers has reduced by 55400, digital subscription actually increased by 67800 in 2019. Assuming that news readers have opted for more environmental friendly alternative by going digital, the 12400 difference is a growth of readership. However, that works out to be an increase of 1.3% which is not a lot.
On a side note, MoneySmart has an article about comparing Straits Times digital subscription cost to other popular news sources. Besides Straits Times being the priciest, their main competition for news reporting comes from Mediacorp as they provide free news through Channel News Asia and Today from a consumer perspective.
As for their property segment, I will leave it for another blog post since it is a listed REIT. To be honest, why the diversification to property, elderly care etc and how does it complement as a whole? If anyone has the time to read their annual report, do check out their list of subsidiaries. I was surprised to see 2 pages long list of businesses that doesn't synergizes with each other.
There has been some concerns revolving around the current CEO because of his previous tenure at Neptune Orient Lines (NOL). Long story short, NOL was sold during his term to a French container shipper, CMA CGA. CMA CGA subsequently turned things around in NOL and made it profitable within a year. It definitely left a black mark on his track record.
Besides the CEO's reputation, SPH's move into REIT does seem like they don't have a clear idea on how to improve their media business.
Speaking of newspaper, my parents used to tell me as a toddler to read more because it helps with languages and thinking. Of course I didn't like it, cartoons were far more interesting than walls of text. I'm pretty sure other kids would agree haha.
Fast forward 20 years, I still don't read much of newspapers. I feel there is no need to worry about missing out important news either since many people would share it on social media. With the internet, information is easily available anywhere and can feel overwhelming. So, sometimes I just need a break from it.
I had the chance to share this perspective of mine with my prof during an alumni event and here's what he said:
Reading newspaper opens up opportunities with people you just met by having a common topic.
It made total sense which led me thinking maybe I don't talk much is not because I'm introverted but because I didn't read enough of news.
Overall, I feel that SPH has not done enough to attract the younger generations to read more newspaper so I highly doubt we will see a trend reversal in the near future.
Anyway, I will skip this as well mainly due to the fact that it has been declining for the past decade and recovery is far from sight. Even though it pays 6% dividend, it is subjected to cuts whenever the business is struggling.
My 2 cents
Disclaimer: The information listed here are strictly my personal opinion. It does not constitute as investment advice. Please do your own due diligence.
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