Towards the end of April, I revealed that I added SBS Transit to my portfolio and I also added to my investment in ComfortDelgro.
I said I would talk a bit more about these in my next quarterly report.
I was just being a lazy fellow, as usual.
Well, I decided that I should talk about it sooner than later because I am a nice person too. 😉
I should not leave a story half told (for too long.)
So, why did I do what I did?
SBS Transit is, of course, mostly owned by ComfortDelgro and in the business of public transportation minus the taxis (and airplanes.)
As I expect ComfortDelgro to do better post pandemic, all else being equal, a major contributor to this improvement should come from SBS Transit as ridership numbers on buses and trains improve.
So, becoming a shareholder of SBS Transit while its stock price languishes at close to pandemic level seems like a fairly good idea.
Fundamentally, SBS Transit is a profitable business with a relatively strong balance sheet too.
Then, if we look at EV/EBITDA, like ComfortDelgro’s, SBS Transit’s valuation is relatively cheap.
Having said this, I am not going to build a large position in SBS Transit as I already have a relatively large investment in ComfortDelgro.
I am more interested in increasing my investment in ComfortDelgro and I did so again earlier this month when the price of its common stock dipped below $1.40 a share.
I thought Mr. Market was offering me a bargain given ComfortDelgro’s improving prospects.
Although the pandemic revealed a major weakness in the business of public transportation and not being overly optimistic about the improving situation is probably a good idea, neither should we be overly pessimistic.
This is especially the case as we learn to live with COVID-19.
ComfortDelgro, unlike SIA or GRAB, has a relatively strong balance sheet.
ComfortDelgro is also profitable and not burning cash like SIA or GRAB.
What about dividends?
If we compare the free cash flow generating abilities of ComfortDelgro, SIA and GRAB, it is very clear which one is the winner.
Dividends from my investment in SBS Transit should be enough to pay for my mobile phone’s subscription every year and still leave enough money to buy a few dozen bars of dark chocolate.
ComfortDelgro should better reward shareholders as earnings improve and with my larger investment, I would be a happy beneficiary in this case.
Of course, remember, this is just mental AK talking to himself again.
Rising interest rate and home loans.