SPH: "Only bright spark is property arm; SPH Reit is a better investment vehicle"

This article was recently published on www.nracapital.com,and is republished with permission.

KevinScully.9.13

Kevin Scully, executive chairman of NRA Capital. Photo: CompanySPH reported its Q1-2015 results which reflected the continued weakness in its print media. Key financial highlights are:

a) revenue in Q1-2015 was S$307.1mn down 6.5%

b) pretax profit was 95.9mn down 19%

c) net attributable profit fell 21.9% to S$69.4mn

d) EPS was 4 cents with NAV of S$2.33

Annualised PE at S$4.11 is 25.7 times with a price to book of 1.76

Expected dividend yield is 3.6%

More details on its operational performance can be found in its Q1-2015 presentation slides.

Commentary

SPH is a blue chip company in a transition phase brought about by the growing presence of digital media. This is a world wide trend as seen by the numbers below:

a) US print circulation down 10.5% over last five years while print ad revenue down 29.5%

b) Europe print circulation down 23% while print ad revenue down 17.6% over last five years

c) Asia print circulation up 6.5% while print ad revenue is up 3.3% over last five years.

Singapore is a mature market like the US and Europe so we can further declines in circulation and print ad revenue as digital media takes a stronger hold. The good news as seen in SPH's presentation slides is that SPH is making gains in digital ad revenue but the latter is not sufficient yet to offset to decline in print. An equilibrium will be found but not yet.

There is some mitigation in that newsprint prices are expected to be softer. The company also has a decent cash horde and is actively looking for new investments. Until these are made and help reverse the weakness in print circulation and ad revenue its probably tool early to think of investing in SPH

At the mid twenties PER for FY2015 and no sign yet of an earnings recovery - SPH shares are probably 10% overvalued at current levels. The expected dividend yield of 3.6% is also not compelling.

I also note that the only bright spark in SPH is its property arm - the new Seletar Mall is expected to contribute in Q2-2015.

SPH Reit which gives exposure to its property arm is offering an indicative dividend yield of just over 5% - this looks more defensive (given its almost 100% occupancy) three year tenancy with some growth for new acquisitions.

This seems to be a better investment for investors while they wait for SPH to find that turning point between print and digital ad revenue.

Recent story: SPH: Lacks Exciting Growth But Offers 5% Dividend Yield

SPH: "Only bright spark is property arm; SPH Reit is a better investment vehicle"

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