Singapore Press Holdings (SPH)

[KopiKat]

Whether you find SPH attractive for investment depends on your investment objectives.

It's definitely not a growth stock, in fact, their traditional media segment, which'd been providing the bulk of their revenue and earnings is under tremendous pressures (demographic trends + new alternative media) and will more likely than not, decline over time (if it's not already happening). It's definitely not a traditional Warren Buffett kind of stock of incredible franchise with wide moat, at a great price,....

But, why is Warren Buffett buying newspaper companies? Perhaps, he's more interested in the cash flow? Most (if not all) of us know or think that the traditional model of print copy newspaper will die.... one day. But, in the meantime, SPH continues to rake in profits, which are used to pay out a dividend. At ~6%, it's hard to find better alternatives, without taking on a lot more risks.

The next question to ask is, "Will it die soon?". For now, I don't see any signs that it's going to suddenly drop dead any time. They're for sure not sitting still, waiting to die... I finally see a more focussed approach to the Property segment, which, if properly managed, can become a source of growth. There's also the new media, exhibition, retail (buzz),... etc. There's a high chance that the dying process will take a lot longer and in the meantime, it's going to morph into a different configuration that may even give us a tiny chance (or purely hope) of not only survival but.... growth...? It all boils down to planning and execution...

I know the purists here don't like this and would term it as a half baked approach. They'd rather invest in pure Property or pure Retail stocks. By all means... likel I mentioned earlier, it depends on your personal investment objectives.

So, at the right price, SPH can be attractive to the right group of investors if it fits their target objective of Yield vs Risk. You make your own choice...


PS. Personally, I don't have s newspaper subscription. I don't even have the time (no priority) to read newspapers, whether print or online.... But, I'm vested in SPH... on and off, depending on price vs alternatives (other stocks)...

[Drizzt]

Staff costs are one of the reasons i see that affects the media margins. Staff cost that rises with inflation but unable to improve on monetization. Hence looking at segmental attribution of staff costs may be able to tell.

Kopikat, so you see this as a business that grows with GDP or a zero growth business.

With the cash holding, what kind of acquisition will make most investment sense.

[felixleong]

Warren buffett has been buying a lot of newspaper businesses in US
But he's only paying around 5 times earnings, which I think is still very attractive valuations

[momoeagle]

Kopikat, I concur with your post. In summary,
1) It is not a growth stock. Unlikely to be in the foreseeable few years
2) Not a wide moat at a great price. But to me, the moat is big enough that there won't be any other local newspapers company.
3) Future boils down to planning and execution, highly agreed.
4) At the right price, attractive to different group of investors yup


Drizzt, I agree staff costs rise with inflation. In a way, I view it this way, SPH ad revenue is pretty consistent, indicating that its market is pretty saturated. Readership is perhaps at its maximum since it is the sole official newspaper, which concurs on being unable to improve on monetization. Ad revenue being in tandem with GDP, is to me a non-growth core business.

Years ago, Singapore was attempting to introduce competition by letting MediaCorp enter newspaper business, and SPH enter TV Media. In the end, it didn't succeed, which to me points to a natural monopoly for both businesses.

But like Kopikat says, key thing is, at the right price, it is still attractive to different people with different objectives

[KopiKat]

Kopikat, so you see this as a business that grows with GDP or a zero growth business.

It's still very much an economy-driven kind of stock. Their Media biz is mainly a conduit for the bigger Advertising biz and this is very much dependent on the state of the economy. As for the growing Property segment, there ought to be a time lag (plus averaged out ie. swings are less sudden) to the state of the economy as rental reversions are typically well spread out over a number of years (except at the beginning stage like Clementi Mall). So, very much GDP driven and any growth will likely have to come from other areas eg. Property.

With the cash holding, what kind of acquisition will make most investment sense.

In the past, my dream was the creation of a Media Powerhouse (like News Corps), to be first created with a merger with MediaCorps.... I had high hopes when Tony Tan was appointed as the new Chairman back then... However, I now realised that this is an almost impossible dream due to political (internal, domestic and regional) reasons.

Further, looking at their recent past investment track records, IMO, the lesser evil is to continue to invest into Malls or possibly even Office assets. For Media related biz, till date, I don't see them becoming a serious contender in the online arena. Perhaps, they're being very cautious so that it won't cannibalise their current, profitable offline model?

PS. My views are not set in stone. It changes as the story develops and if new twists and plots surfaces... eg. recent IPO of SPH REIT.

[Ben]

This talk about SPH core business is dying has been going on for as long as I can remember, but till now we are still seeing a very strong organization dishing out attractive dividends year after year plus the occasionally special dividends. Yes, there is no doubt that its paper circulation is reducing year after year due to digital competition, but as Kopikat has said and I agreed, it is not going to die anytime soon. And most important, SPH is not just going to do nothing while others are eating their cheese.

IMO, SPH is no difference from other newspapers company in the world, facing the same challenges as others do. But it is in a very unique situation. Singapore is a small country, and the newspaper industry is protected. I can safely says that they won't be another newspaper company in Singapore. (The chances of a new transport company, new airport ground handing company, new banks, new Telco, new postal company is much higher than the chances of another newspaper company). IIRC, WB ever said that he likes a well established paper in a small community. For SPH, it is not only a well established newspaper company in a small country, it is and will be the only newspaper company in Singapore. Because of this fact, it will continue to do well enough to continue to declare attractive dividends for a long time to come. It is highly possible that for a LT investor in SPH, he/she is able to get back his/her capital just from SPH dividends. I got back about 40% of my capital thru' dividends over the years and now sitting on a single digit % paper gain, not bad I guess.

We can also see that SPH is actively trying to diversify, and the efforts seem to intensify in recent years. So far the results has not been very successful I must say. Here again I would say that SPH is difference as compared to other companies. It can "afford" to try a lot of things, make mistakes and still not make a big dent to its bottom line. And because it has the financial strength, it can muscle its way in if it takes to long to build from scratch, like acquiring sgcarmart.

SPH just sold off OpenNet. It still have a substantial stake in M1. Will they also divest it off one day? If that happens, can we look forward to another special dividends?

[Greenrookie]

After digging into the numbers, I think I can established the "classified and recruits" sections as an advertisement revenue generator is in decline, regardless of economic performance.

The "display" sections will properly around for a long time and might even go from strength to strength due to economic strength.

The "classified" section revenue is 28% of 2012 Ad revenue, at 218 million and is continuing to shrink in 2013.

Now to look at it at perspective of whether SPH other businesses can offset this, 5% annual deterioration is only 11 million, about 1.3% of annual advertisement revenue and less than 0.5% of total revenue. i seriously do not think it will be a tall order to offset this.

[CityFarmer]

This talk about SPH core business is dying has been going on for as long as I can remember, but till now we are still seeing a very strong organization dishing out attractive dividends year after year plus the occasionally special dividends. Yes, there is no doubt that its paper circulation is reducing year after year due to digital competition, but as Kopikat has said and I agreed, it is not going to die anytime soon. And most important, SPH is not just going to do nothing while others are eating their cheese.

IMO, SPH is no difference from other newspapers company in the world, facing the same challenges as others do. But it is in a very unique situation. Singapore is a small country, and the newspaper industry is protected. I can safely says that they won't be another newspaper company in Singapore. (The chances of a new transport company, new airport ground handing company, new banks, new Telco, new postal company is much higher than the chances of another newspaper company). IIRC, WB ever said that he likes a well established paper in a small community. For SPH, it is not only a well established newspaper company in a small country, it is and will be the only newspaper company in Singapore. Because of this fact, it will continue to do well enough to continue to declare attractive dividends for a long time to come. It is highly possible that for a LT investor in SPH, he/she is able to get back his/her capital just from SPH dividends. I got back about 40% of my capital thru' dividends over the years and now sitting on a single digit % paper gain, not bad I guess.

We can also see that SPH is actively trying to diversify, and the efforts seem to intensify in recent years. So far the results has not been very successful I must say. Here again I would say that SPH is difference as compared to other companies. It can "afford" to try a lot of things, make mistakes and still not make a big dent to its bottom line. And because it has the financial strength, it can muscle its way in if it takes to long to build from scratch, like acquiring sgcarmart.

SPH just sold off OpenNet. It still have a substantial stake in M1. Will they also divest it off one day? If that happens, can we look forward to another special dividends?

I am in the same camp as KopiKat and Ben. SPH's media business is a cash cow, and should be valued as a cash cow, at least up to today.

If the cash generated are put into more "yield accretion" investment(s), than SPH is definitely worth to put money in, when price is right.

SPH's management had high hope on OpenNet, but gave-up now. The paid-up capital of OpenNet was $40 mil iirc, and SPH hold 25% i.e. 10 mil. The sale proceed is $31.5 mil, more than 2x gain in 3 years, not too bad an investment, but a small sum to SPH...

As for M1, a PE or company to acquire it from SPH, and then a GO with a good price, is definitely a good news to me, a long-term shareholder of M1...

(not vested)

[specuvestor]

SPH pays about $400m in dividend every year. "Soon" will be based on whether their Operating cashflow excluding disposals can fund this.

[safetyfirst]

Warren buffett has been buying a lot of newspaper businesses in US
But he's only paying around 5 times earnings, which I think is still very attractive valuations

haha i like this... many people always quote buffett when they want to want to rally behind sph, but they fail to realise that buffett buys at 5 times earnings pretax, and perhaps 7 times earnings aftertax, but at the current price of sph, buying into it is easily like 15 times earnings for its media business and if you pay 15x earnings for a business with declining profits, hmmm, it's too risky for me.

Not to forget, at least 50% of its net profits come from its media business which is still a signifcant percentage. As for its supposedly growth business in developing malls and reiting them, well, many other developers in singapore are also doing that. Does SPH really have a clear edge above the rest? Not really

SPH is not only mediocre, at its current price, it is bad. (this is just my opinion, so dont attack me personally, attack my opinions)