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Mr. Market is showing displeasure with FSL Trust's decision to reduce quarterly DPU from 0.95c to 0.1c. Its price has plunged more than 20% from the closing of 30c yesterday to 23c when I last looked.
Assuming an exchange rate of US$1 to S$1.30, the annualised distribution yield is about 2.2% per annum based on a unit price of 23c. Better than fixed deposit rates but as an investment, it is not very attractive.
However, I believe that this development together with the Trust's recent successful refinancing with a 6 year amortising loan are steps in the right direction. If the Trust survives the difficult times ahead, it could emerge stronger and ready to ride the next upswing in the cycle.
Read press release: here.
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10 comments:
I was frankly quite shocked when I saw the DPU reduction of nearly 90% year on year! I was under the impression that the Trust had managed to sort itself out with refinancing of its loans and therefore could enjoy more stable, predictable cash flows.
But it seems stable and predictable are tough words to use during such times, when shipping is once again going through a painful bust.
2% yield is hardly enticing, when most blue chips are paying 3% and above. Added to that the risk of some of the lessees collapsing and defaulting, I guess this is why the Trust is being so ultra-prudent.
Looking back, I did not regret divesting FSL Trust back in early 2010 at a price of 40 cents.
Regards,
Musicwhiz
Hi MW,
Yes, hard times are upon us although we have not felt the full impact in Singapore.
This is one mistake I made in investment which I have shared freely here in my blog.
Unlike CitySpring Infrastructure Trust which gave me a chance to exit with no losses, FSL Trust has not presented me with any such opportunity. It remains a freezer stock for me and is likely to remain so for some time.
Hi ak do you know that this reduction was done purposely? It seemed to me they will resume normal disteibtuon next quarter. If so buying now is a steal?
Hi Bill,
The reduction in distribution is a voluntary action. It is also the prudent thing to do.
Given the very difficult conditions facing the shipping industry and anecdotal evidence suggesting that things could get tougher, I would be very surprised if the Trust would resume higher payouts in 2012.
Call me lucky, or maybe not. I divested after the last dividend payout with capital loss as my entry price was 48c. Imagine my surprise at the drop of some 90% in DPU payout this round.
Hi Investment Dilettante,
As long as you feel that you are lucky to be rid of the stock, you are. :)
Hi ak
Berlian laju is facing problems. Looks like must offload
Hi Bill,
I do not follow Berlian Laju but I read in a another blog that it has been suspended. Apparently, it has massive debts. The shipping industry is going through some rough seas.
I divested after the Japan earthquake last year.
Hi DW,
At the time, people expected that Japan would import more coal for its energy needs which could lead to an increase in demand for bulk carriers. So, you decision to divest then would have seemed counter intuitive but it has turned out nicely. Congratulations. :)
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