It’s not every day that we see prominent, blue-chip companies trading at depressed valuations.
With Covid-19 ravaging stock markets around the world, many quality companies have been sold down to multi-year lows.
Investors need to remember that even during a crisis, they need to be discerning.
Not everything cheap represents a bargain. Indeed, some stocks are cheap for a reason.
We compiled a list of three blue-chip companies whose share prices are hitting 10-year lows.
Investors need to decide if they are justified to trade at such levels, or if the market is unjustly punishing them.
Dairy Farm International (SGX: D01)
Dairy Farm International Holdings Ltd, or DFI, is a Pan-Asian retailer with operations in Singapore, Malaysia, Indonesia, Hong Kong and China.
DFI’s retail operations come in several different formats: supermarkets, hypermarkets, health and beauty, convenience stores.
The group’s share price has hit a 10-year low of US$3.60, even as the group continues to execute on its transformation plan announced during its fiscal year 2018 earnings.
DFI’s fiscal year 2019 earnings were better than expected, with an improvement in grocery retailing due to the right-sizing of the hypermarket division.
The group also kept its total annual dividend constant at US$0.21. The shares offer a trailing dividend yield of around 5.8%.
With recent developments relating to Covid-19, however, the group may witness a significant decline in footfall at its outlets that may impact its financial performance for the fiscal year 2020.
Singtel (SGX: Z74)
Singapore Telecommunications Limited, or Singtel, is one of the three largest telecommunication companies (telcos) in Singapore.
The group’s share price has fallen to $2.27, and only during the previous Global Financial Crisis in 2008 did Singtel trade lower.
With competition heating up in the telco space due to the impending entrance of a fourth telco, TPG Telecom, Singtel has been suffering from declining average revenue per user (ARPU).
Prepaid and post-paid ARPU declined by 7.2% and 11.4% year-on-year, respectively.
Though its third-quarter fiscal year 2020 revenue dipped by only 5% year-on-year, net profit after tax slumped by 23.8% year-on-year due to a drastic year-on-year decline in the share of results from associates and joint ventures of 57.2%.
Singtel’s associate, Bharti Airtel, was also hit with a massive S$5.38 billion fine by the Supreme Court on how the Government’s share of revenue is computed.
These troubles have pushed Singtel’s shares to its cheapest level in a decade. However, investors should be mindful that these challenges may persist unless Singtel devises a strategy to tackle them head-on.
Singapore Press Holdings (SGX: T39)
Singapore Press Holdings, or SPH, is a leading media organisation whose core business is the publishing of newspapers, magazines and books in both print and digital editions.
Over The last decade, the internet and smartphones have increased in popularity, resulting in more and more people going online to consume news and media.
The headwinds have resulted in falling revenues at SPH’s media division. For the first quarter of the fiscal year 2020, the media division’s sales fell by 13.6% year-on-year to S$140 million. The division’s profitability plunged by nearly 77% year-on-year to just S$7.5 million.
To arrest this decline, management has been aggressively expanding into both aged care assets and purpose-built student accommodation (PBSA) assets.
These assets are recession-resistant and should hold up well due to a growing ageing population.
However, investors should note that these assets are not contributing meaningfully to SPH’s top and bottom line yet.
Meanwhile, SPH’s share price continues to hit a new 10-year low, and last traded around S$1.67.
Get Smart: Bargain or value trap?
Investors should assess the business prospects and industry characteristics relating to each of these businesses.
Though these blue chips may be trading at a 10-year low, they may not always represent a great bargain.
Investors may be wading into a potential value trap if these blue-chip companies continue to see earnings deterioration over the long-term.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.