UK acquisition could uplift SPH amidst media business declines

Earnings from the media segment dropped by $10m to $12m from 2016 to 2017.

The acquisition of the 14 purpose-built student accommodations (PBSA) in the UK by Singapore Press Holdings could buoy the firm amidst the earnings decline from its media business, UOB Kay Hian (UOBKH) said.

According to the research firm, SPH’s earnings from its media segment has dropped by $10m to $12m per annum from 2016 to 2017.

Also read: SPH buys 14 UK student accommodation buildings for $321m

“Assuming that print revenue decline re-accelerates into FY 2019 (due to abating tailwinds from property advertising), the acquisition only stabilises SPH’s earnings. Further acquisitions will be required to grow earnings meaningfully,” UOBKH explained.

Meanwhile, UOBKH also thinks that SPH is late to the student accommodation game and its yields are around a 10-year low.

“With rental income for the current student accommodation portfolio unlikely to grow at above average rates, the only valuation upside left is from falling cap rates,” UOBKH said. “This is a high-risk gambit as SPH is acquiring assets at the late stage of the cycle.”

Also read: SPH's Saturday Straits Times see fewer property ads

According to UOBKH, extrapolating the strategy to one or two more assets could help SPH grow earnings, but at risk of overpaying.

The PBSA buildings are located across six towns and cities in established university towns including London, Birmingham, Bristol, Huddersfield, Plymouth, and Sheffield. With a total capacity of 3,436 beds for student accommodation, the properties include 10 freehold assets and 4 leasehold assets.