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Singapore Airlines at $6
29 Mar 2020 (84 views)

My friend asked me if it is ok to buy SIA shares at $6.00. I did this analysis. I want to share it with you.

Please note that I am sharing my view and not giving financial advice.

I think it is all right to buy SIA shares at $6. They are expected to report a horrendous loss of $2.5 billion due to their disastrous fuel hedging policy.

If I am correct, this is the loss due to mark to market for their future contracts. So, it is a one time loss, based on fuel price remaining at the current low level.

Over the next 6 years, the fuel price should return to "normal". So, the actual loss could be lower than $2.5 billion.

The total asset for SIA is $30 billion. The loss of $2.5 billion, if written off the asset will reduce the asset by 8%.

The net asset per share for SIA is $10.25. The current price is $6. So, you are getting a discount of 40% on net asset value. If the asset is reduced by 8%, the discount is still an attractive 32%.

The average share price of SIA during the past five years is around $10. the current price represents a drop of 40%.

The PE ratio for SIA is 10X. The earnings will be very bad for the next 12 months. Beyond that, even if the earnings drop, the PE ratio will still be below 15X. For its brand, this is an acceptable PE.

SIA is calling a rights issue and will issue new shares at $3. So, if you buy at $6, set aside money to take the rights at $3. Your average cost will be $4.50.

If you do not take the rights, you can sell the rights at the price quoted in the market. It is likely to be around $1.20.

click here for the latest financial figures on SIA.

Disclaimer: This is a lay person's view. I do not have a financial adviser license.

 


Singapore Airlines at $6
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My friend asked me if it is ok to buy SIA shares at $6.00. I did this analysis. I want to share it with you.

Please note that I am sharing my view and not giving financial advice.

I think it is all right to buy SIA shares at $6. They are expected to report a horrendous loss of $2.5 billion due to their disastrous fuel hedging policy.

If I am correct, this is the loss due to mark to market for their future contracts. So, it is a one time loss, based on fuel price remaining at the current low level.

Over the next 6 years, the fuel price should return to "normal". So, the actual loss could be lower than $2.5 billion.

The total asset for SIA is $30 billion. The loss of $2.5 billion, if written off the asset will reduce the asset by 8%.

The net asset per share for SIA is $10.25. The current price is $6. So, you are getting a discount of 40% on net asset value. If the asset is reduced by 8%, the discount is still an attractive 32%.

The average share price of SIA during the past five years is around $10. the current price represents a drop of 40%.

The PE ratio for SIA is 10X. The earnings will be very bad for the next 12 months. Beyond that, even if the earnings drop, the PE ratio will still be below 15X. For its brand, this is an acceptable PE.

SIA is calling a rights issue and will issue new shares at $3. So, if you buy at $6, set aside money to take the rights at $3. Your average cost will be $4.50.

If you do not take the rights, you can sell the rights at the price quoted in the market. It is likely to be around $1.20.

click here for the latest financial figures on SIA.

Disclaimer: This is a lay person's view. I do not have a financial adviser license.