Singapore Post (SingPost) is our local mail delivery shop. SingPost continues to deliver mails to our homes. Its Public Postal Licence was renewed for 20 years starting 1 April 2017. This is good news since this is a monopoly with not another player at this moment. SingPost has the postal network and staff members to deliver mails and parcels to addresses in Singapore. Alibaba, a giant eCommerce/logistic global company, took a stake in SingPost in 2014. It now holds 14.4% stake in SingPost. Singtel holds 21.7% and is the largest shareholder of SingPost.
Looking at the big picture, what can go wrong with investment in SingPost? But it did.
The share price of SingPost reached a peak of $2.14 on 27 January 2015. Over the span of two and a half years, the share price is now trading at $1.33. That was whopping drop of 38% over the period.
What went wrong?
It boils down to acquisition of TradeGlobal in 2015 that lost value for SingPost. TradeGlobal is US based eCommerce provider company.
In 2016/2017 financial year, SingPost had to write-off $185 million for TradeGlobal. This resulted in Net Profit for the year slumping 86% from $258 million to 33 million among other reasons.
For major acquisition of a company, it is always very difficult to put a potential value to a business. The acquirer company may pay too high a premium on purchase of a target company. This premium is taken into the accounts of the acquirer as Goodwill, which is an intangible asset. If the investment sours, this Goodwill asset dissipated and a write-off into the current year’s profit takes place. This is what happened in the case of SingPost.
In the case of a major acquisition of a company, I put the responsibility squarely on the CEO and the Board of Directors at the time when the decision was made. The small-time investors depend on them to do their jobs responsibly and honestly. The shareholders do not run the company and are at their mercy.
I am a believer in the value of SingPost and also a shareholder. But the plummeting value of its shares caused heartache.
Copyright © 2017, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.