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Tuesday, April 21, 2015

Recent Action - Sembcorp Industries

A quick update on the latest transaction I've done since my last portfolio update:

As part of my ongoing resolution to rebalance my equities and cash allocation due to the recent market run-up, I have divested all my 10,000 shares for SCI at a price of $4.84 today. The counter will be going ex-dividend this Thursday so I will not be receiving the 11 cents/share dividends declared.



Some of you might remember that I did a few valuations on SCI a couple of months ago which you can refer to the original articles below.

In the valuations, I input a few assumptions into the model and came up to an intrinsic value of $5.16. You can view the assumptions in the original article and tweak around as you deem fit. At a price of $4.84 which I divested today, it came up to a rough discount of 6% from the intrinsic value I calculated. Pretty fair more or less if you ask me. The stock valuation was much more attractiveback then when they were at the bottom $4 than now. Having said that, there are a few updates related to SCI since my last report in Feb which I have not factored in:

  • Risks in SMM in regards to cancellations of orders, delivery delays and margin pressure from the Brazil drillship project.
  • Oil seems to have bounce back from their recent low. Whether or not we'll see another trough will be for the future to predict.
  • Sale of municipal water assets in UK. The company will record a one-time gain of $50m from the sale. However, the recurring utilities segment will be impacted at around 2% of the utilities earnings. Do note that UK remains the fifth biggest geographical segmental contributor after Singapore, China, Middle East and Rest of Asia. The water contribution meanwhile remains the lower end of the contributor to the utilities segment after energy power and energy gas & steam.




As far as price to earnings valuation is concerned, the company is now trading at a multiple of 10.8x which is in line with the long term average mean for the past 7 years. EV/EBITDA has gone up to around 7.9x which is slightly higher due to the weaker balance sheet and more borrowings on the books, mainly due to expansion from the marine and utilities segment which has not crystallised. Having said that, capital expenditure expansion should subdue in the next few quarters so we'll probably see more borrowings being repaid off.

The above capital reallocation has now increased the warchest portion to around 30%, which is at a much more comfortable level.


What about you? Still buying at this price?


24 comments:

  1. 10,000 means the full divestment of your SCI shares right?
    Why not sell them in batches like 1/3 4.80 1/3 5.00 and so on

    ReplyDelete
    Replies
    1. Hi Felix

      I was thinking of selling partial previously but between 4.84 and 5.00 I doubt there'll be much difference. If I were to hold them partially, I'll probably aim to hold them much longer, which in this case I will bring along the unknown risk with me holding the stock.

      Delete
  2. B,

    what is yr average buying price?

    ReplyDelete
    Replies
    1. His average price is 5.058 based on his transaction history.

      Delete
    2. Hi Anonymous

      Thanks for computing my average price :) It looks about right down there. If my memory serves me right, I bought them all the way when it was at around $5.30 to all the way when it was at $4.20.

      Having said that, the thing to note about the average buying price is circumstances have changed when they were bought at $5.30. Back then, oil price was hovering around $100+ while competition for the utilities are not as intense as they were right now. We need to consider the implications of these risk at this point when we are deciding to buy or sell, which is the reason why I don't bother too much about the average buying or selling price.

      If oil were to shoot up to $100 tomorrow and the price is still at $4.84, I would have bought them back because certain factors have changed and thus the criteria to purchase have also changed.

      Delete
  3. I see, then its quite disciplined for you to cut loss at this stage

    taking a 4% loss and having a peace of mind is fine, just a small setback only

    I started buying from $5++ and bought all the way down to $4.20 which I showed hand...

    at peak I had 15,000 shares... sold off at 4.40, 4.60 and 4.80
    now I still have a balance of 8000 shares, will slowly let go at every 20 cents increment

    Cheers

    ReplyDelete
  4. Do u think it is too much activity here considering the plus points such as lower capex going fwd, oil price stabilizing, India power plant start generating income etc, and u sold it at a small loss?
    I would expect less activity here given its a stable blue chip at reasonable price, and good div.

    ReplyDelete
    Replies
    1. Hi CSCCC

      Actually we can look at it from another angle.

      Those bought much earlier I have collected a few rounds of dividends, so whether I eventually sold it at a loss or profit after dividend counts is up to anybody who is reading it.

      Having said that, I am not fixated on the average purchase price and having to make sure I profited from it when I sell them. I think this is one part which I have been stressing heavily in my blog over the past couple of years. Average buying price is only a useful tool to measure performance and they are not a good indicators to make decisions. As such, the thesis to purchase back then at $5+ was very different than when the oil saga hit and struck pushing its back lower.

      Having said that, I agree that SCI is in a growth mode and their free cash flow generating capability after excluding capex is great. The recent run up may just feel a little too bullish given that their main risks are still there unaccounted for.

      Delete
    2. We must try to learn to think not of average price. Every trade should be independent and think differently.

      Delete
  5. Let's see if more will follow to sell? Just like the Buy months back! haha

    ReplyDelete
    Replies
    1. Hi Rolf

      I doubt that will be the case.

      SCI is after all a very well run blue chip company though they are having some sort of short term pressure from the marine side.

      Delete
  6. I still like the company of recurring stability. The oil price hits it rev short term probably so i am not so worry since it is still have good returns. Furthermore Oil has probability to move higher. However i sold 1/3 to lock in the capital gains in case i am wrong. Holding the rest on longer term give me a good balance in this counter exposure.

    ReplyDelete
    Replies
    1. Hi Cory

      I am assuming you are referring to the utilities segment for the recurring income. Recurring is a very generalized word used these days but do take a closer look at the segmentation of the business and understand the main reason behind why there are upcoming pressure these days coming in the specific geographical areas.

      Locking in partially is a good move in case our suspicion is wrong and in any case, we can always purchase more from the market once we are clearer with some of the things.

      Delete
  7. Still holding onto all my shares in SCI. Also waiting to buy more during next shares price "weakness" ;)

    ReplyDelete
    Replies
    1. Hi Boonchin

      I should be joining you if the market misprice the share as part of its "weaknesses" :)

      Delete
  8. What's your view on this? Sembcorp awarded project to develop the largest gas-fired independent power plant (US$300 million) in Myanmar.

    ReplyDelete
    Replies
    1. Hi Anonymous

      This is a very positive news for the company as they managed to secure a project in a new territory that would grow and diversify their business across the region.

      Projected CAGR is expected to be good over the next few years but do watch out of the capex requirement which they will need to cash out for this project now. The impact for this will also be felt mid to long term similar to when they first venture into India and it took 3 to 4 years before they can start commencing from this year onwards.

      This is a very positive news for long term shareholders of SCI.

      Delete
  9. I'm still holding onto my SembCorp shares.
    Although their O&G will take sometime to recover but I like their utility business.
    I could have sold some at 4.8 but since i only got 1000 shares, so oh well. :)

    ReplyDelete
    Replies
    1. Hi Eye of the Storm

      If you are intending to hold this for a very long term, I don't think there's any doubt you'll do just well holding their shares.

      Delete
  10. good sell at the 4.8x levels

    SCI has fallen to 4.5x now

    Cheers

    ReplyDelete
  11. if SCI comes down to say $4.20 levels again, would u consider purchasing?

    ReplyDelete
    Replies
    1. Hi Felix

      As long as we are buying this within below 10x PER, I think we'll do fine with this. I'll foresee they are going to come just under 44 cents this FY, so anything below $4.40 would be my target entry price again.

      Delete
  12. SCI results for Q1 was horrible, nice that u got out completely

    I had only managed to reduce my holdings from 15,000 to 6,000

    cheers

    ReplyDelete

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