SingTel

(17-11-2012, 06:01 PM)Drizzt Wrote: i take it that if i pay positive good will to acquire A, i must have seen something good in A for it to earn an amt i require. companies usually impair the good will when that premise wasn't the case anymore.

now back to the point, if you pay so much for Optus, you must see that Optus future cash flow is rather superb. so now, its ROA is the lowest amongst all the telcos under singtel's stable, but its an important cash flow machine, i take it that it was a dud purchase. had they not buy that share holders would be better off. they made a decision to purchase because the parent wants them to expand out.

let's look at it in another way. Assume today, Optus earns nothing. So singtel has to write off the entire goodwill. Yes, we will see earning drops by a significant amount. But does that reflect the real earning power of singtel. Clearly no. It would be just an accounting requirement only. The mistake was made long ago. Whether you impair the goodwill or not, when you impair the goodwill does not affect the real earning at the moment.

(17-11-2012, 07:08 AM)freedom Wrote: ask yourself the following question:

Do you buy singtel based on its book value? What's the ratio are you looking at? Pb =?

Goodwill is an accounting requirement, if you like, you can write off its goodwill for your own convenience. And you can write off anything you don't like in the balance sheet. Your valuation does not need to follow accounting standards.

I got interested in Singtel is more on the business aspects, which are:

1. They have many joint ventures where got involved in developing countries.
2. They have business oversea so have more market exploration opportunities.
3. They start doing mobile data and content services instead of stay on traditional telco business.
4. Generally their finance is quite ok, PE is not demanding, margin good and ROE is fine.
5. The most important thing, the ex-CEO has left the company.

And i thought the Optus chapter has closed until i discover the huge $9.6b goodwill still remains on the book, it becomes quite an eye sore.

It make me think like keeping a cow which consume 70% of the grass but only produce 30% of the milk. The worst thing is i overpaid the cow by 100%. Will you get upset? Should you slaughter the cow?

(17-11-2012, 06:40 PM)freedom Wrote:

(17-11-2012, 06:01 PM)Drizzt Wrote: i take it that if i pay positive good will to acquire A, i must have seen something good in A for it to earn an amt i require. companies usually impair the good will when that premise wasn't the case anymore.

now back to the point, if you pay so much for Optus, you must see that Optus future cash flow is rather superb. so now, its ROA is the lowest amongst all the telcos under singtel's stable, but its an important cash flow machine, i take it that it was a dud purchase. had they not buy that share holders would be better off. they made a decision to purchase because the parent wants them to expand out.

let's look at it in another way. Assume today, Optus earns nothing. So singtel has to write off the entire goodwill. Yes, we will see earning drops by a significant amount. But does that reflect the real earning power of singtel. Clearly no. It would be just an accounting requirement only. The mistake was made long ago. Whether you impair the goodwill or not, when you impair the goodwill does not affect the real earning at the moment.

Not taking sides on this issue.
But like to point out that if the goodwill to be written off manages to wipe all retained earnings of Singtel, Singtel can't pay dividend.
That's the different between company and business trust.

(17-11-2012, 08:05 PM)camelking Wrote:

(17-11-2012, 06:40 PM)freedom Wrote:

(17-11-2012, 06:01 PM)Drizzt Wrote: i take it that if i pay positive good will to acquire A, i must have seen something good in A for it to earn an amt i require. companies usually impair the good will when that premise wasn't the case anymore.

now back to the point, if you pay so much for Optus, you must see that Optus future cash flow is rather superb. so now, its ROA is the lowest amongst all the telcos under singtel's stable, but its an important cash flow machine, i take it that it was a dud purchase. had they not buy that share holders would be better off. they made a decision to purchase because the parent wants them to expand out.

let's look at it in another way. Assume today, Optus earns nothing. So singtel has to write off the entire goodwill. Yes, we will see earning drops by a significant amount. But does that reflect the real earning power of singtel. Clearly no. It would be just an accounting requirement only. The mistake was made long ago. Whether you impair the goodwill or not, when you impair the goodwill does not affect the real earning at the moment.

Not taking sides on this issue.
But like to point out that if the goodwill to be written off manages to wipe all retained earnings of Singtel, Singtel can't pay dividend.
That's the different between company and business trust.

I am sorry to say that you are wrong.

As of Sept 30, the retained earnings of singtel group is more than 24 billion, therefore, even after singtel writes off the entire intangible asset of more than 10 billion. It does not impact its ability to continue to pay dividends.

Ah.... talking about retained earning. Is retained earning really cold hard cash reserve retained by the company? We must be careful about it. It may or may not be.

Extract:
Maintaining a large credit balance in retained earnings doesn't necessarily mean a business has a correspondingly large cash surplus. Determining a company's actual cash reserves requires an accountant or investor to examine the cash account under the current asset section of the company's balance sheet. This informs the accountant or investor how much money the business actually has in reserves or as surplus from previous earning years. A company that invests large amounts of cash into a new capital asset, including a new manufacturing facility, may have a large credit balance in retained earnings, but a low cash balance.
So can anyone confirm Singtel really have the cold hard cash to write of Optus's goodwill? 9.6 Billion?

Quote:So can anyone confirm Singtel really have the cold hard cash to write of Optus's goodwill? 9.6 Billion?

If you are writing off goodwill, the goodwill just disappears from the total assets of the company, and is balanced by writing off the same amount from retained earnings. It is a non-cash event.

i know writing off goodwill is a non-cash event. And it is consider as an intangible asset. So it's all about bookkeeping only. But paying for goodwill is really cold hard cash. Another words to look for how much cold hard cash a company has we have to look at current assets, etc and maybe not retained earning unless it is clearly stated it is uncumbered cash reserve.

(17-11-2012, 08:26 PM)freedom Wrote:

(17-11-2012, 08:05 PM)camelking Wrote:

(17-11-2012, 06:40 PM)freedom Wrote:

(17-11-2012, 06:01 PM)Drizzt Wrote: i take it that if i pay positive good will to acquire A, i must have seen something good in A for it to earn an amt i require. companies usually impair the good will when that premise wasn't the case anymore.

now back to the point, if you pay so much for Optus, you must see that Optus future cash flow is rather superb. so now, its ROA is the lowest amongst all the telcos under singtel's stable, but its an important cash flow machine, i take it that it was a dud purchase. had they not buy that share holders would be better off. they made a decision to purchase because the parent wants them to expand out.

let's look at it in another way. Assume today, Optus earns nothing. So singtel has to write off the entire goodwill. Yes, we will see earning drops by a significant amount. But does that reflect the real earning power of singtel. Clearly no. It would be just an accounting requirement only. The mistake was made long ago. Whether you impair the goodwill or not, when you impair the goodwill does not affect the real earning at the moment.

Not taking sides on this issue.
But like to point out that if the goodwill to be written off manages to wipe all retained earnings of Singtel, Singtel can't pay dividend.
That's the different between company and business trust.

I am sorry to say that you are wrong.

As of Sept 30, the retained earnings of singtel group is more than 24 billion, therefore, even after singtel writes off the entire intangible asset of more than 10 billion. It does not impact its ability to continue to pay dividends.

Great! Congrat to you.
By the way, did u miss an "IF" in my original statement?

i agree somewhat what Temperament said that they did put in 10 bil as cash upfront looking for a payback. you can't really discount that as accounting.

if it is the case, singtel can now go buy AIS at an overvalued price (laden with goodwill) and that would be "right"

(18-11-2012, 01:19 AM)camelking Wrote: Great! Congrat to you.
By the way, did u miss an "IF" in my original statement?

I have nothing to be congratulated. thanks anyway. I did not miss your IF. Just the IF does not make much sense.

Because if there is not enough retained earnings to cover writing off of goodwill, creditors would already stop the company from paying dividends.

Also even that happens just because company keeps losing money. The company could choose to writes off its accumulated loss against its share capital. Therefore, when the company starts to earn money, it can pay dividends.

In a word, so long as the company can continue to earn a decent profit, there is nothing stopping it from paying dividends.


for business trusts, the problem is that most trust if not all do not earn enough to cover its dividends.

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(18-11-2012, 04:03 AM)Drizzt Wrote: i agree somewhat what Temperament said that they did put in 10 bil as cash upfront looking for a payback. you can't really discount that as accounting.

if it is the case, singtel can now go buy AIS at an overvalued price (laden with goodwill) and that would be "right"

if Thailand starts to nationalize ais for a cheap price , then how?

No one wants to pay a higher price, but if you want to buy, you gotta pay.

How many stocks are you buying at price higher than book value or tangible book value? Essentially, you are paying goodwill to own shares of company.