SingPost shareholders voted on Thursday, March 13, on the proposed divestment of its Australian multimodal logistics business, Freight Management Holdings (FMH).
The proposed transaction's value and the Australian business's contribution to SingPost are significant. Below are some considerations that may guide shareholders in deciding on the deal.
However, the weight of each factor varies for each shareholder.
Pros:
Locking in Capital Gains
A bird in hand is worth two in the bush.
The proposed sale, at an enterprise value of A$1 billion (S$856.5 million), would yield a capital gain of S$289.5 million. This is S$22 million lower than the S$312.1 million initially anticipated when SingPost announced the unsolicited offer from private equity firm Pacific Equity Partners in December 2024, as the Australian dollar has depreciated against the Singapore dollar.
SingPost has invested approximately S$78.6 million in equity into FMH, from a 28% minority stake in December 2020 to nearly full ownership by December 2023.
If the proposed divestment proceeds, this Australian investment would deliver a 3.7x return on equity.
Reducing Debt
As of September 2024, SingPost's acquisition debt for FMH stood at A$362.1 million. The total divestment proceeds of A$775.9 million would allow the group to cut its Australian dollar borrowings without incurring any foreign exchange losses.
Reducing debt is crucial—borrowing costs have been eroding SingPost's profits.
This could explain why SingPost's share price fell despite gaining a diversified revenue stream through the FMH acquisition.
In the first half of fiscal year 2025, earnings grew 97.3% to S$22.6 million, but this would have been higher if not for a nearly 70% surge in finance costs to S$24.6 million.
SingPost's borrowing costs rose due to additional loans taken to support its Australian operations—acquiring Border Express and increasing its stake in FMH.
As of December, its total borrowings stood at about S$867 million, with total liabilities at S$1.7 billion. The company also has S$250 million in perpetual securities (not considered debt in accounting terms), paying out over S$10.8 million annually at a 4.35% rate.
Special Dividend
If the sale proceeds, a special dividend could be paid from the S$289.5 million disposal gain, but there are competing demands for the funds, including working capital, debt reduction, and future investments.
If the group decides to pay a special dividend of S$0.01 per share, it would cost S$22.5 million. In other words, every S$0.01 special dividend would add S$22.5 million in multiples.
Given the S$289.5 million total disposal proceeds and competing uses for the funds, the amount SingPost can pay as a special dividend is limited.
Cons:
Finding a Replacement for the Australian Business
If the sale proceeds, SingPost would be left with its Singapore business (a small market with a drag from its postal operations) and its international business, which faces intense competition.
In recent years, both segments have contributed less to group profits than its primary profit driver—the Australian business.
FMH is reportedly among the top five players in its category in Australia.
According to SingPost's latest update, operational costs for the Singapore and international businesses outpaced revenue growth, leading to a 23.8% year-on-year decline in group operating profit to S$21.1 million in the third quarter ended December.
The reduced contribution stems from macroeconomic pressures, including rising inflation, supply chain disruptions, and a fiercely competitive environment.
In contrast, the Australian business's contribution increased in both revenue and operating profit, largely due to the integration of Border Express into FMH post-acquisition.
The board stated that following the sale of the Australian business, the group would reset its strategy.
But will this strategy work?
As SingPost gradually increases its stake in new ventures, as it did cautiously with FMH, it may take time for new businesses to make meaningful contributions.
$(S08.SI)$
Comments