This post would attempt to briefly value Singpost using the balance sheet and many assumptions.
Valuing Singpost’s discount rate
In determining the discount rate to be used, we would use the rate of return required on equity and debt. As
Rate of Return
3.5% (Listed Notes)
Company Discount rate(Sum of 3 above)
We will be using 11.35% as our discount rate.
Method of Estimation: Extrapolation of 9 months results and doing a Discounted Cash Flow (DCF) calculation.
Assume revenue growth of 3%, Operating margins to be kept steady at 22% as per Q3 results. Value per share = $0.7673
Assume revenue growth of 0%. Operating margins at 22%. Value per share = $0.5481
Assume revenue growth of -2%. Operating margins at 22%. Value per share = $0.4566
(Lease of Singpost headquarters expires 30 August 2081)
Method of estimation, using discounted cash flow method till 2081 by extrapolating amount of profit at 9mths FY18/19 for the full year.
Positive profit growth at 6%Value per share = $0.3531
Positive profit growth at 2%Value per share = $0.1934
Negative profit growth of 1%Value per share =$0.1605
Method of estimation, using discounted cash flow for bull and base case.
Assume profit margins of 0.46%(Q3 margins) with 0% growth. Value per share = $0.0009272
Unprofitable business, assume sale at 50% tangible book value(as of 2017 FY). Value per share = $0.07676
Method of estimation. Divestment as there
Divestment at 75% of book value. Value per share = $0.06114
Divestment at 75% of tangible book value. Value per share = $0.03464
Unprofitable business, assume sale at 50% tangible book value. Value per share = $0.02310
Value per Share($)
% of scenario occurring
Postal: Business may not continue indefinitely as the license needs to be renewed periodically.
Property: Estimation of bull case profits increase of 6% could be overly optimistic
Logistics: Business estimation is definitely very difficult as profits for these 9 months of FY 18/19 are very low resulting in margins that are way lower
eCommerce: Losses may continue and affect divestment price as these negative profits will reduce equity and in turn reduce assets. This would hurt the divestment value of the segment.
Food for thought
In FY18/19, the company has moved its self-storage business (General Storage Company Limited) from the Logistics segment to Property Segment. As such it becomes harder to estimate the commercial property rental.
As of Q3 FY18/19, Intangible assets accounted for 13.79% of total assets and 21.5% of net assets. It also amounted to value per share of $0.1677.
I would practice my patience and wait for a purchase price of $0.59 to occur. This would give me a 15% upside to my bear case estimations which is in line with my 15% return on equity set earlier. Any upside that will improve the valuations will have to come from a surge in margins of the logistics business or a turnaround in the e-commerce business.
Alternatively, a good exit value of the acquisitions made will improve the net asset value of the company and improve its balance sheet by reducing intangibles.