The group may consider a special dividend after repaying debt and considering future funding needs

 

SINGAPORE Post (SingPost : S08 +0.86%) has entered into a share purchase agreement to divest its Australian business at an enterprise value of A$1 billion (S$870 million) as part of the outcome of a strategic review. The review, launched earlier this year, sought to explore strategic options that would enhance business value and maximise shareholder value, it said.

 

SingPost will receive actual cash proceeds of A$775.9 million and generate a gain on disposal of about S$312.1 million, subject to adjustments determined at the time the deal is completed. 

 

The buyer is Pacific Equity Partners, an Australia-headquartered private equity fund, said the national postal service provider on Monday (Dec 2).

 

SingPost&rsquo s Australia segment includes fourth-party logistics services, third-party logistics solutions including transportation and distribution, and last-mile courier delivery, as well as warehousing services.

 

The net asset value of the company&rsquo s Australia segment stood at about S$384.7 million as at Sep 30, 2024. Revenue for the business rose 44.1 per cent on the year to S$574.8 million for the first half ended September. Operating profit increased 30.2 per cent on the year to S$30.4 million.

 

Apart from the Australia business, the international and Singapore businesses contributed S$12.7 million and S$23 million in operating profit, respectively.

 

Use of proceeds

SingPost said that proceeds from the proposed disposal will reinforce the group&rsquo s liquidity and strengthen its balance sheet. 

 

It intends to use some of the gross proceeds to repay its borrowings, particularly its Australian dollar-denominated debt amounting to A$362.1 million as at Sep 30, 2024. SingPost&rsquo s total Australian dollar-denominated debt stood at A$614.8 million as at end-September. 

 

Additionally, the group also said it would consider issuing a special dividend, after repaying its debt and considering its future funding needs. It will retain the rest of the proceeds for future growth opportunities to invest in existing and/or new businesses, assets and investment opportunities, said the group. 

 

Simon Israel, chairman of SingPost, said: &ldquo The board believes this divestment is the best option for shareholders by crystallising the unrealised value of the business and bringing forward unlocked value for shareholders.&rdquo  

 

What next?

Upon completion of the sale, SingPost will &ldquo review and reset&rdquo its strategic plan, with a &ldquo continued focus on shareholder value&rdquo , said group chief executive Vincent Phang.

 

Assuming that the deal was completed on Mar 31, 2024, the net tangible asset per SingPost share would increase to S$0.689 from S$0.349.

 

Earnings per share would have been S$0.162, up from S$0.035, if the transaction had been completed on Apr 1, 2023. 

 

SingPost will convene an extraordinary general meeting to obtain shareholders&rsquo approval for the transaction. It will also need to obtain the approval of Australia&rsquo s Foreign Investment Review Board for the deal to go through.

 

The divestment is expected to take place by the end of March 2025. Following the completion, SingPost Australia Investments and its subsidiaries, including Freight Management Holdings, will no longer be part of the SingPost group.

 

OCBC Global Markets Credit Research said in a report on Monday that the divestment is expected to be a &ldquo positive&rdquo credit event for SingPost because debt will be reduced substantially, and the Australian businesses are still facing considerable headwinds from softer business environments and stiff competition.

 

&ldquo Per management, SingPost is likely to return to net cash position after the transaction,&rdquo said the report.

 

SingPost&rsquo s freight-forwarding business Famous Holdings in Australia, which is not part of the proposed divestment, has been classified as a non-core asset and is available for asset recycling, noted OCBC.

 

&ldquo The outlook of the freight-forwarding industry remains challenging, with continued uncertainty stemming from the Middle East developments per annual report FY2024,&rdquo it added.

 

In a separate report, OCBC Investment Research noted that SingPost&rsquo s Australian logistics business is one of the top players Down Under and was contributing significantly to the group as it pivoted away from its domestic post and parcel business.

 

But the management could not tell the analysts at the briefing on Monday what the strategic plans are for the group, post-divestment. This is why the OCBC Investment Research analyst is not raising the fair-value estimate of SingPost shares at S$0.58.

 

SingPost did not respond to The Business Times&rsquo query on the possibility of a delisting following the divestment of its non-core assets and the Australian business.

 

CGS International has, however, raised its target price for the stock to S$0.74 from S$0.58, as it believes that SingPost will double-down on its asset monetisation strategy and return cash to shareholders.

 

There are S$1.5 billion worth of assets ripe for value-unlocking by SingPost over the next two years, CGS pointed out. These include SingPost Centre (valued at S$1.1 billion) and other post office assets, the freight-forwarding business (valued at more S$100 million), and minority-stake investments.

 

Maybank Securities analyst Jarick Seet had earlier said that he viewed the group as &ldquo deeply undervalued&rdquo , considering its current net assets, which could result in higher profitability and dividends if the group decides to sell them over the next few years.

 

He had added that the sale of the freight-forwarding business would &ldquo significantly reduce finance costs and bump up the future profitability&rdquo for the group.

 

A BT commentary last month had urged SingPost to divest non-core assets such as its post office properties to cut borrowings. In March, SingPost said that it would be looking to divest such assets, including retail-commercial mixed development SingPost Centre.

 

SingPost is making more headway in its quest to slash debt and reinvent itself. Last week, it said that it is in exclusive talks for a potential sale of its Australian business, though nothing definitive has been reached. 

 

The postal services provider has been focused on getting leaner in recent years, closing 12 post offices and identifying non-core businesses in a strategic review that concluded in March. As part of the weight-shedding, it plans to sell SingPost Centre at Paya Lebar Central, a non-core asset valued at S$1.1 billion as of September last year.

 

Also, the potential sale of its freight forwarder unit, Famous Holdings &ndash which SingPost has identified as a non-core asset &ndash could unlock about S$900 million to S$1.1 billion of proceeds, a Maybank Securities report said last week. The report, which initiated coverage on the stock with a &ldquo buy&rdquo rating and a S$0.74 target price, deemed SingPost &ldquo deeply undervalued&rdquo . SingPost&rsquo s counter closed at S$0.58 last Friday.

 

While the market celebrated the potential divestment of the Australian segment, there is some irony in this development. A sale Down Under will help SingPost pare its debt and interest expenses, but it was its expansion in the Australian market that had contributed to its growing loan obligations.  

 

At the same time, its acquisitions there were key to its pivot towards global logistics. Already, SingPost&rsquo s Australian interests account for 59 per cent of its operating profit in H1 FY2025, providing much of the growth in revenue. 

 

The market will now keenly watch which of its Australian units and how much of them it will sell. As BT&rsquo s Tay Peck Gek noted in a Hock Lock Siew piece last week, selling anything other than a minority stake in its Australian ventures will negate the work it has put into growing its business there.

 

Balance sheet aside, SingPost faces a larger and more fundamental existential conundrum. It is no longer a public utility provider, as its CEO Vincent Phang noted. However, it continues to have the trappings of one.

 

It is Singapore&rsquo s only public postal licensee and must incur costs to keep up service standards. It also needs the government&rsquo s approval to raise postage rates, which it did last October. Even so, the last major rate hike was in 2014.

 

Last year, BT&rsquo s Ben Paul had reckoned in a Mark to Market column that the boost from rate hikes would be a temporary one. &ldquo The higher postage rates will do nothing to halt the decline in postal volumes,&rdquo he&rsquo d said. From FY2019 to FY2023, SingPost&rsquo s mail volumes fell by more than 40 per cent. 

 

S& P Global Ratings, however, said in an update this year that the higher rates and improving e-commerce volume mean that the domestic postal sector is &ldquo no longer a drag&rdquo on SingPost. The credit ratings agency has a &ldquo BBB&rdquo rating and negative outlook on the company.

 

For SingPost&rsquo s latest half-year earnings period, revenue from Singapore was up thanks to the higher rates, but one-off costs and the continued decline in letter mail volume tugged the unit&rsquo s bottom line into a S$900,000 operating loss &ndash albeit a much smaller one compared with its previous loss of S$14.7 million.

 

The group is hammering out an operating model with the authorities to &ldquo ensure the long-term commercial viability of postal services&rdquo , it said earlier this month. For now, the focus appears to be on its post office network, with the number of branches set to be &ldquo significantly smaller&rdquo , chief executive Phang said at a recent analyst briefing.

 

It is a little soon to tell, but these moves hardly sound like the seismic changes that BT&rsquo s columnists have previously mooted, from letting SingPost revise its own rates annually to having a full or partial nationalisation of its domestic obligations. 

 

Regardless, SingPost&rsquo s inbox is pretty full it has given itself three years to reduce debt, scale up in a competitive Australian market and re-engineer its local postal network, among other things. 

 

The postman&rsquo s snow, rain and heat must be looking pretty good right now.

Its Australia segment includes fourth-party logistics services, third-party logistics solutions and last-mile courier delivery

 

Shares of Singapore Post (SingPost) : S08 +4.5% were heavily traded on Wednesday (Nov 27) following &ldquo exclusive talks&rdquo of the potential sale of its Australian business. 

 

The counter gained 0.9 per cent or S$0.005 to S$0.56 shortly after the market opened. At the midday trading break, the stock had traded up by 4.5 per cent or S$0.025 to S$0.58, with 19.8 million securities changing hands. 

 

As at 1.10 pm, the group&rsquo s share price was up 3.6 per cent or S$0.02 to S$0.575. 

 

SingPost&rsquo s Australia segment includes fourth-party logistics services, third-party logistics solutions including transportation and distribution, and last-mile courier delivery, in addition to warehousing services. 

 

The group&rsquo s Australian business logged a revenue of S$574.8 million for the half year ended Sep 30, up from S$398.8 million a year earlier.

 

In May 2023, SingPost ​ ​ embarked on a restructuring process, with the intention of bringing back capital returns to shareholders.

 

Based on a Maybank Securities report by analyst Jarick Seet that was issued on Monday, the group was viewed to be &ldquo deeply undervalued&rdquo . 

 

According to SingPost&rsquo s recent share price levels, the stock was trading at around 15.8 times based on FY2026 estimates, which Seet highlighted to be below its global peers&rsquo average of 19.8 times. 

On the whole, SingPost&rsquo s net profit for the first half ended September nearly doubled to S$22.6 million on higher revenue, up 97.3 per cent from S$11.5 million in H1 FY2023. Group revenue rose 20 per cent to S$992.4 million from S$827.3 million a year prior.