Singapore Post, a favorite income yield stock amongst income investor have fallen off from a stable price range. Is this an opportunity to accumulate or is there something wrong with the company?
For a yield stock that was so stable at $1.10 it fallen down to $1.00 and now another free fall. Honestly I think the price should hold at $0.93 region and it shouldn’t fall to the next possible support at $0.84.
Yield looks attractive
Make no mistake people like SingPost because they think that it is a mature business that provides very predictable free cash flow which in turn, pays out a decent yield.
In summary, good yield for low risk, basically like a safe bond.
- At $1.10 > Yield is 5.6%
- $1.00 > 6.25%
- $0.95 > 6.50%
- $0.85 > 7.30%
For the latest dividend yield of SingPost you can track it on my dividend stock tracker [Singapore Dividend Stock Tracker >>]
On this note 6.5% does look attractive but what about the business aspect?
Change in management and operating environment
When I look at the recent price movement, my thoughts are: Why would a stable stock which usually does well in a bearish environment exhibit this kind of price movement. Some of the income yield stocks that are more stable on my Dividend Stock Tracker such as Singtel, Starhub, SPH, Vicom have remained stable.
The most recent changes at the group could be the destabilizing factor
- Promotion of Dr Wolfgang Baier to Group Chief Executive Officer. Baier is a 10 year McKinsey veteran age 37 years old.
- Appointment of Sacha Hower as Chief Operations Officer. Sacha is a junior partner at McKinsey as well age 33 years old.
- Capital expenditure is increasing.
- Free cash flow to pay dividends is barely if not covering dividends.
- Aggressively building a logistics network in Asia Pacific
- Partnering with DBS bank
- Aggressively growing different products
This SingPost is growing to be pretty different then the yield stock we used to know. The cash holdings are declining. The operating cash flow is starting to look uneasy to cover the dividends.
For the first time, it seems the Chairman really sees business model problems with the old business. Why else would they bring in a CEO and COO from McKinsey?
The fear is that if they do not be aggressive and expand their product range, or optimize their economies of scope, they could become somewhat like Global Yellowpages where they are disrupted and irrelevant as a business.
I honestly think that the share price movement could be a vote of no confidence in the recent move to e-retail and logistics, as well as the risk in such a young management team.
- Logistics, although have so much synergy with postal service, is essentially low margin, and depends so much on the global economy. Profitable? Probably. Defensive? I am thinking not so much.
- Partnering with financial services is correct. But it didn’t work out the first time with Prudential. I still think this is an execution and marketing problem. But then, how often do you go to a brick and mortar for your banking needs anymore?
- Much will hinge on what the new management brings to the table. They may have good ideas but I honestly am skeptical when you replace old heads with consultants. We deal with consultants all the time so I am opening up to readers whether do they execute well.
Would I buy SingPost? I still have 1 lot in there at $1.08 and unlike Starhub when it was at $2.10 (which was a good call I feel) this one I just frame a good outcome. I am fundamentally weak here so if there are folks well verse with postal, supply chain and in this aspect you guys can help educate my readers and me.
I leave you guys with a 2011 Accenture report on the challenging postal environment. I welcome any views regarding Sing Post
As mail volumes dropped,margins were squeezed, prices increased, and operational improvements were made; but the consequences of economic fragility meant the challenges remained significant. It became clear that, without action, volumes would continue to decline and the postal industry would reach a point where costs exceeded revenues. So where does the compass of progress point next for postal organizations?
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