Many readers have asked me about this relatively high yielding dividend stock on my Dividend Stock Tracker called Cityspring, whether it is a good buy since its yielding 7.1%
My advice is look at the sustainability of the cash flow. Still the cash flow isn’t Cityspring’s problem.
This stock was trading at $1.50 when it IPO and its got its good name because its firstly a Utility and affiliated with Temasek.
Therefore a lot of people got invested in it.
Utilities tend to be high gearing ( 40-60% debt to asset) so its not very surprising. If you look at well run utility overseas, they tend to provide a good yield despite high capex.
Warren Buffett owns utilities as well and think of them as good business if their managers manage it well, since if you can manage the capex and the cash flow is government regulated you can take the free cash flow and deploy it in other areas.
Cityspring’s third quarter report can be viewed here.
Earnings as you can see meander wildly. But usually we take a look at the cash flow statement to see how well the EBITDA is doing.
Their operating cash flow looks much improved. But I will like to bring your attention to the balance sheet.
Assets did not grow but actually fell. Total Assets currently list at 1986 mil.
The long term debts stood at 1315 mil.
This brings the debt to asset to 66%!
I am not sure but i think one of the covenants for them not being forced to pay back this loan is that Temasek divest their interest in it.
High interest and equity dilution
In the cash flow statement, it shows that for the 9 month an interest of 43 mil is paid. Now if we extrapolate full year operating cash flow before working capital we get a sum of 160mil and likely interest payment is 58 mil.
The interest payment is 36% of EBITDA. That is huge interest payment.
For an infrastructure trust its interest payment is larger than its depreciation. This is definitely not a normal behavior.
Equity increase 27% in the past year due to rights issue without a meaningful add to asset yield.
All in all, this is another poorly manage utility. And you would have expected better for a Temasek affiliated entity.
I standby my conclusion that Temasek affiliated does not add much value.
I hope folks don’t come to a conclusion that utilities are bad business because there are folks that got rich investing in well run utilities in the US that deploy their capital well.
Under the hands of different management, the results can be vastly different.
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