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For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this the transcript of another recent video I produced.
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All investments are good investments at the right price.
Related post:
ComfortDelGro Q1 profit plunged!
I like to ask myself this question whenever one of my investments is suffering a paper loss.
"If I was not already invested in this at a higher price, would I buy at the price now?"
If the answer is "yes", then, I could possibly add to my position in the investment.
If the answer is "no", then, I could either hold or sell.
To hold, there must be some redeeming qualities like a strong balance sheet, the ability and the will to pay dividends consistently.
To sell, it could mean that I think the business has weak numbers, would lose money, stop paying me and maybe even struggle to stay afloat.
To be sure, I could also sell some if I must raise cash for another investment which I think could be more rewarding.
For some time now, ComfortDelGro has been getting "BUY" calls from many experts, citing the cheap valuations.
For some time now, ComfortDelGro has been getting "BUY" calls from many experts, citing the cheap valuations.
Although ComfortDelgro isn't what it used to be, no thanks to senselessly destructive competition brought on by money burning GRAB, it is trading at a level which is really inexpensive now.
In a recent video, I said that ComfortDelGro was not a basket case and that it still has a place in a diversified portfolio of investments for income.
I elaborated on this in a blog which shared the transcript through my reply to a viewer's question.
Please find link to the blog below.
For people who are more concerned about the future of the business, there are many analyses available but all of them have this one thing in common.
All of them say that ComfortDelGro will see numbers continue to improve.
Here, I will share some points in an analysis by RHB research.
Expect earnings to improve in second half of 2023 "amidst reductions in taxi rental rebates and benefits from the annual indexation of overseas bus contracts."
Expect earnings to improve in second half of 2023 "amidst reductions in taxi rental rebates and benefits from the annual indexation of overseas bus contracts."
"Public transport earnings seem to have bottomed, and improvement should be seen in overseas operations during second half of 2023 amidst indexation of higher operating costs in the UK.
"Singapore should continue to see improvement in ridership in rail.
"Reduction in Singapore taxi rental rebate from 15% to 10% and the scope to increase commission rates for taxi bookings.
ComfortDelGro charges only 5% versus 20% charged by GRAB.
I keep saying that ComfortDelGro is still a profitable business unlike money burning GRAB.
In Q1 2023, ComfortDelGro generated free cash flow of almost $90 million.
This brings its cash balance to more than $1 billion.
It is in a net cash position of $715 million.
"Even with our estimate of its CAPEX reaching pre-pandemic levels by 2025, we expect it to continue building on its current strong net cash position."
"Even with our estimate of its CAPEX reaching pre-pandemic levels by 2025, we expect it to continue building on its current strong net cash position."
This supports what I said in my recent video on ComfortDelGro.
That to invest in ComfortDelGro is to invest in a business that is generating a lot of cash while keeping a very strong balance sheet.
It has also shown its ability and will to pay dividends through good and bad times.
RHB research estimates a normalized dividend yield of 4.5% to 5.5% based on a 65% payout ratio.
During "Evening with AK and friends 2023", I mentioned that I sold half of my investment in
ComfortDelGro at $1.35 a share and bought back some at $1.15 a share last year.
$1.15 a share was a fairly good price.
There is much market pessimism surrounding ComfortDelGro now and according to RHB research, it is trading at minus 1 deviation compared to its historical average which reflects this.
A mean reversion could eventually happen.
ComfortDelGro has shown its willingness to reward shareholders whenever it felt it had more funds than it needed to hold.
ComfortDelGro has shown its willingness to reward shareholders whenever it felt it had more funds than it needed to hold.
With a growing cash pile, we could expect higher dividends too.
Having said this, I remind myself that investing in ComfortDelGro is not to invest for growth.
If we are looking for growth, we should look elsewhere.
If AK can talk to himself, so can you!
Related post:
ComfortDelGro Q1 profit plunged!
Bloggy Award
12 comments:
Reader commented in my YouTube channel:
Comfort has a decreasing assets, eps trend for the last 5 years, lost its moat, I cant see how it is coming back from all these.
It has good free cash flow though.
AK replied to reader:
There is no doubt that it has lost its moat. GRAB came with mutually destructive war strategy. How to keep the moat?
Despite this, CDG stayed profitable although GRAB kept burning money.
However, to be fair, the last 5 years included the exceptional COVID 19 pandemic which lasted for 2 years. That caused EPS to take a big hit.😷
Hi AK
Can you talk to yourself about keppel reit.
Seem like the price is dropping below per pandemic.
Thanks
Alan
Follow up comment on CDG from reader in my YT channel:
very true I didn't consider covid, it's like the airlines business then, why not consider sbs transit then? Transportation business also but I think also good recently since 2016 leadership change, but comfort had been good for a longer term
My reply to the reader:
I did nibble at SBS Transit during the COVID-19 pandemic bear market.
However, I decided I was being silly since the bulk of CDG's revenue was from its bus and rail business.
So, I was just getting more exposure in largely the same business. 😅
Hi Alan,
I had a bad impression about Keppel REIT donkey years ago.
I might still have a very small legacy position.
To be fair, I do not know if the management culture has changed since then.
Reference:
K-REIT: 17 for 20 rights issue.
Dear AK
CDG is one of the many eyesores in my diverse portfolio and I cut losses earlier this year partially
Overseas earnings are still weak, Grab is not going away, inflation and oil will stay high
I would rather invest fresh money elsewhere than risk it here
Maybe at 1$, I might be tempted but if it gets there it is either a big market correction or CDG specific bad news. Neither of these will sway me and I would put money in banks, Areits Etc than this, Singtel is another basket case with similar traits.
Regards
Garudadri
Hi
I don't have any exposure to CDG, so decided to nibble a bit in SBS.
Hi Garudadri,
Yes, I remember our past conversations on ComfortDelGro. :)
I too reduced my investment, took a loss, and reallocated the funds to OCBC and UOB in early Q4 2022.
I just want to keep in mind what Peter Lynch said about how "all investments are good at the right price."
So, just questioning whether Mr. Market is being overly pessimistic about ComfortDelGro now?
For sure, if ComfortDelGro is trading at $2 a share today, I would not be a buyer as it isn't the business it was many years ago, no thanks to GRAB.
However, at closer to $1.10 a share, given the strength of its balance sheet and still respectable FCF generating ability, it seems like a decent enough investment for income.
It is good that all of us have our own plan. :)
Hi Yv,
I see what you are doing there.
AK getting free curry puffs from Old Chang Kee.
Yv getting free bus and train rides from SBS Transit! ;p
Hi Ak
Can you talk to yourself on Venture ? It has closed to 1bil of cash but the recent qtr reported decline in profit and revenue.
Tdy newsper reported negative growth in many sectors excluding transport engineering. Is SG heading for a recession?
Hi SgFire,
I only know Venture is in contract manufacturing.
I don't know enough to make any informed decision here.
So, I better keep quiet. ;p
As for whether Singapore is heading towards a recession, there are signs of that happening in the next few months.
In a video I produced a few weeks ago, I said we should be prepared.
Monetary Authority of Singapore is worried. We should be worried too. Be prepared.
What will be will be. :)
Hi AK,
In one of your replies above, you mentioned that at $1.10 a share, you will consider adding CDG. Its price has been steadily falling below that. Any thoughts on this? Keen to DCA, but afraid of catching a falling knife :/
Hi DS,
Do you mean this?
"However, at closer to $1.10 a share, given the strength of its balance sheet and still respectable FCF generating ability, it seems like a decent enough investment for income."
I guess for anyone who wants exposure, it is a decent enough entry price.
For someone who already has a large exposure like me, however, the share price has to go down much more for me to be interested in adding.
I will also want to see a positive divergence in the chart before adding.
Also, both AA REIT and IREIT Global announced rights issues.
I will have to address that need first.
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