SPH – The end of a joke era and joke stock

 

With the Keppel Surprise Acquisition offer of around $2.099 per share (Consisting of Cash, Keppel Reit Shares and SPH Reit Shares), it signals the end of an once dividend darling to many investors.

One can never forget the umbrage era, led by Mr Ng who have joined on 1 July 2017. When he joined the company, the share price on 30 June 2017 was $3.23.

During his time up till recently, a dividend of $0.395 was paid. Which meant that the returns of a shareholder would have amounted to a loss of 22.79%. However, considering that a dividend may be announced still, the losses might be reduced further.

1 would wonder what has gone all wrong at the company for such things to happen. Let me attempt to sum it up from my memory.

Downhill Financials

From a profit of 395 million in FY 2017 to a profit of 259 million in FY 2019 to a loss of 112 million in FY 2020, 1 can hardly blame that the company has been sliding as it has done badly pre-Covid and has done badly during Covid as well. To use the illustration of a sinking ship would not be harsh at all.

Failed Acquisitions

Following the appointment, the company has gone on to many different fields, from aged care to student accommodations and acquiring partial stake of M1 are just few of the many acquisitions it has done.

However, most of it can be labelled as overpaid, In FY 2019, there was a 22.8 million impairment for Aged Care, considering this is pre-covid writedown, it shows significant misjudgement.

In 2020, on the back of the covid landscape, further writedowns were seen in Aged Care, Mindchamps, Student Accommodations as well as its exhibitions segment.

(17.4 million in OV,PBSA and Exhibition, 10 million in MindChamps, 232 million in FV Change of Invesment Properties)

In conclusion, the actions above have been detrimental to shareholder’s value. With regards to whether it has been written in the stars since 2017 or was it a human error in judgement, its up to individual’s take.

What this deal means to Keppel

Interesting enough, there are a few synergies that can be made from this acquisition.

First off, it gives them the opportunity to have full control of M1, operating as a private company even though it is on the books of a listed company.

Secondly, it gives them full control of the Media Centre, which is to be redeveloped into a Data Centre, which creates a possibility of flowing it into Keppel DC Reit in the near future.

Lastly, this offer is below the $2.21 NAV of SPH as at Feb 2021 after its dividend distribution, when one has factored in that the impairments were made to the property portfolio in 2020, this is a relatively bargain offer that could work well in the long run when the pandemic subsides. It is also worth noting that SPH owns 65.4% of SPH Reit but under this acquisition, only 45.4% are given to SPH Shareholders via the scheme. Which meant that a portion of it is being acquired by Keppel.

Final Thoughts on this offer

Honestly, i take umbrage at this offer, it offers little chance for SPH to recover to its great peaks and allow us as bystanders to appreciate that what a leader the CEO might have been. If this deal goes through, i wonder what others would see of him but in my eyes he is someone who is more than likely to erode shareholders value but guarantees an exit offer.

For SPH shareholders, they can continue hodling REIT shares and continue getting dividend off them(albeit at a much higher rate definitely).

Ultimately the questions for bystanders now will be what's next for Mr Ng?

Meanwhile if this deal goes through, i would say Keppel has done very well.