Homepage
PR Newswire
Hi Ivan,
As I have mentioned, despite SATS best efforts to expand their overseas operations over the years, the end results are just unconvincing. It is akin to playing football. You may have over 80% of possession, created numerous chances and shots on target in a match, but if you don't score, you don't win. At the end of season, the league table will show where you stand. In football parlance, the league table (SATS financial numbers) doesn't lie.
I have already covered a fair bit on their stagnant earnings, free cashflow, revenue, and unsustainable dividends in my previous posts.
Lets take a look at its balance sheet. While SATS current balance sheet is still considered strong, it has been steadily deteriorating over the years too.
SATS Weakening Balance Sheet (Current Asset - Total Liabilities)
FY15: +289m
FY16: +268m
FY17: +154m
FY18: +119m
Latest Q3, Dec 19: -163m
To be fair, its Debt to Equity ratio is still low. Hence by looking at the above numbers alone, there isn't really a cause for concern. However, if you pluck out all the important numbers from P&L, Cashflow Statement and Balance Sheet over a 5 years period, it clearly showed that SATS is a football club good at winning matches at its home ground, but consistently loses or draws matches at away ground. Mr Market has been evaluating SATS football club as a top 4 Champions League team, where in reality, it is just a mid-table team, no thanks to its poor away form.
For me personally, I will only pay a maximum of 6% earning yield for all of my stock purchase. That works out to be PE 16.7x. Despite SATS downtrending numbers, its business remains solid enough for me to pay up the 16.7x multiple. The average EPS for past 4 years is 22.2c.
16.7 x 22.2c = $3.71
To compensate for Covid uncertainties and the fact that SATS may be looking at operating losses with zero dividends for 1-2 years downtime, I will demand a 20% Margin of Safety from my buying price.
$3.71 x 20% discount = $2.97
If I use free cashflow to overlay my calculation above, the end result is pretty smililar. Free cashflow average over the past few years is around 200m. That works out to be 18.5c. Since free cashflow is high quality earnings, I am willing to pay 20x for it.
20 x 18.5c = $3.70
$3.70 x 20% discount = $2.96
To be entirely honest with you, I will only acquire SATS if the share price hits $3 or below. I could be wrong, the share price may not hit $3 or even close. But with so many cheap bargains around, I wouldn't mind to miss this boat flight. At the end of day, the league table doesn't lie.
As I have mentioned, despite SATS best efforts to expand their overseas operations over the years, the end results are just unconvincing. It is akin to playing football. You may have over 80% of possession, created numerous chances and shots on target in a match, but if you don't score, you don't win. At the end of season, the league table will show where you stand. In football parlance, the league table (SATS financial numbers) doesn't lie.
I have already covered a fair bit on their stagnant earnings, free cashflow, revenue, and unsustainable dividends in my previous posts.
Lets take a look at its balance sheet. While SATS current balance sheet is still considered strong, it has been steadily deteriorating over the years too.
SATS Weakening Balance Sheet (Current Asset - Total Liabilities)
FY15: +289m
FY16: +268m
FY17: +154m
FY18: +119m
Latest Q3, Dec 19: -163m
To be fair, its Debt to Equity ratio is still low. Hence by looking at the above numbers alone, there isn't really a cause for concern. However, if you pluck out all the important numbers from P&L, Cashflow Statement and Balance Sheet over a 5 years period, it clearly showed that SATS is a football club good at winning matches at its home ground, but consistently loses or draws matches at away ground. Mr Market has been evaluating SATS football club as a top 4 Champions League team, where in reality, it is just a mid-table team, no thanks to its poor away form.
For me personally, I will only pay a maximum of 6% earning yield for all of my stock purchase. That works out to be PE 16.7x. Despite SATS downtrending numbers, its business remains solid enough for me to pay up the 16.7x multiple. The average EPS for past 4 years is 22.2c.
16.7 x 22.2c = $3.71
To compensate for Covid uncertainties and the fact that SATS may be looking at operating losses with zero dividends for 1-2 years downtime, I will demand a 20% Margin of Safety from my buying price.
$3.71 x 20% discount = $2.97
If I use free cashflow to overlay my calculation above, the end result is pretty smililar. Free cashflow average over the past few years is around 200m. That works out to be 18.5c. Since free cashflow is high quality earnings, I am willing to pay 20x for it.
20 x 18.5c = $3.70
$3.70 x 20% discount = $2.96
To be entirely honest with you, I will only acquire SATS if the share price hits $3 or below. I could be wrong, the share price may not hit $3 or even close. But with so many cheap bargains around, I wouldn't mind to miss this boat flight. At the end of day, the league table doesn't lie.