In matters of style, swim with the current; in matters of principle, stand like a rock.

The Singapore market has been underperforming in relative to other major indices for some time now, and technically stocks in the market here are generally not over-priced (read here). Perhaps this why recently, there is news of listed companies receiving buyout offers from their management teams and their related parties.

With the flurry of privatization of Singapore market listed companies in recent weeks – read here (it appears to be a continuation of last year’s string of privatization exercises)… suddenly the Singapore market appears ‘sexy’ again.

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What’s interesting is that for some of these companies, their share prices have been on the uptrend for many months or years.

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The buyout offer was initiated by their management teams and their related parties. Who obviously think that their companies’ stock prices are cheap.

In fact, if you search under Value Buddies, many have argued that in the case of Spindex, the Cash Consideration of S$0.850 per Share is too low (some suggested a more reasonable price of S$1.45 per share). Similarly, some consider Silver Creek Capital’s offer of S$1.65 in cash for each of Auric Pacific’s shares that are not controlled by Dr. Riady and Dr. Adhiwana to be too low.

Basically, as insiders, I am sure they (management) know more about the companies’ business and financials better than most people / retail investors. Also, as minor shareholders, most retail investors would have little say in the privatization exercise.

Typically, I like to see myself as a ‘bottom up’ investor – eg. I think more about the fundamentals of the companies when evaluating a stock. However, against a backdrop of the multi-year high US market, I can’t help but wonder why the rush? 

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In 2nd-longest bull run, Dow surpasses 20,000 (read here)

Have the earnings of Spindex or Auric Pacific been exceptionally good in recent years? I doubt so. Base on recent earnings, if the valuation is cheap now, wouldn’t it be much cheaper some time back? Perhaps like I said earlier, the management knew something that we don’t and future earnings might be much better. They may be able to see the future clearer than most of us.

When I studied the historical earning / financial data of Auric Pacific, it is hard to see an obvious upward trend. Be it EPS / ROE / ROIC / Dividends / Free Cash Flow. Not surprisingly, it has not been on my radar – perhaps I have missed something here.

Having said that, on the other hand, Spindex is a fundamentally strong company and is a favorite to many value investors. I can see why management views it as undervalued.

Nevertheless, please see below for an extract of an article about Seth Klarman’s recent letter to his investors (read here):

“In his letter, Mr Klarman sets forth a countervailing view to the euphoria that has buoyed the stock market since Mr Trump took office, describing “perilously high valuations”.

“Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.

“President Trump may be able to temporarily hold off the sweep of automation and globalisation by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces.”

The stock market is always trading on ‘float’. The price is reflective of what the investors already knew and foresee in the future (not the current quantitative value of the company).

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Yes, Singapore stocks are generally not expensive – but when the US sneezes, the world catches a cold. Singapore is a small country which is heavily dependent on trade would not be spared either. So what are the odds of a lower valuation within a few years down the road?

Singapore market has been on an uptrend since the start of 2017. People are starting to talk about the ‘market’ in the office again.

There is always this little voice in me – urging me not to lose out, to join in the euphoria. “See, even the management is buying out their own companies…..”

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Frankly, I don’t know about the future market directions. Perhaps my inaction would result in a huge loss of potential future profits.However, currently, I have yet to bump into any companies which I feel is undervalued.

Investing is really an individual mind game. You are your own worse enemy – never abandon your principles. Stand up for them.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat.
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