SingPost's 8 acquisitions feared to be futile

The dangers of not having a controlling stake.

According to DBS, costs continue to outpace revenue growth. Operating expenses grew 13%  y-o-y outpacing 9% rise in revenues. This was due to inflationary cost pressures and investments in capabilities and resources to expand overseas  revenue.

Here's more from DBS:

We highlight that most of the top line growth can be attributed  to acquisitions worth over S$75m done over the last two years.

More acquisitions cannot be ruled out. In March 2012, SingPost had issued  S$350m of perpetual bonds at 4.25% coupon. This could be in anticipation of acquisition plans and the expiry of S$300m worth of bonds in April 2013. These perpetual bonds are accounted for as equity in our model.

6.25 Scts DPS is safe in our view. Dividend payout ratio translates to ~90% while future acquisitions can be funded by S$350m of perpetual bonds.  However, we don’t think Singpost will hike its payout ratio till it emerges out of its acquisition mode.

The big questions is how viable are these acquisitions? The good part is  that Singpost has not put all its eggs in one basket and has bought stakes in about eight small companies in various geographies.

However, one key issue, in our view, is that Singpost does not have a controlling stake in some of these companies and the mix may be too widespread. This may leave Singpost at the mercy of local managements of these companies.