SPH and Sembcorp Marine Share Prices Have Surged: Is a Recovery Imminent? FREE SPECIAL REPORT

2020-11-25     thesmartinvestor
SPH and Sembcorp Marine Share Prices Have Surged: Is a Recovery Imminent?

The world has been awash in a wave of good news in the last two weeks.

Both Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA) have announced Phase III vaccine trials that boast of a higher-than-90% efficacy rate.

Not to be outdone, the Russian Direct Investment Fund then announced that its vaccine candidate, named Sputnik V, showed a 92% efficacy rate.

Now, a fourth pharmaceutical company, AstraZeneca (LON: AZN) has announced that its vaccine showed a 70% efficacy rate and can be stored in a regular fridge.

These almost back-to-back announcements possibly herald a new hope for mankind during this painful pandemic.

As at the time of writing, the benchmark Straits Times Index (SGX: ^STI) is up almost 20% since the beginning of November.

The surge has been a welcome surprise but raises questions as to whether businesses can finally enjoy a welcome respite from the tough challenges they faced this entire year.

Two prominent blue-chip companies, Singapore Press Holdings Ltd (SGX: T39), or SPH, and Sembcorp Marine Ltd (SGX: S51), or SMM, have surged by 25% and 31%, respectively, in the past week.

What does the sudden rise imply? Could both SPH and SMM be witnessing a nascent recovery soon?

A potential restructuring?

When queried by the bourse operator on the sudden rise in its share price, SPH announced that it regularly “evaluates all opportunities to enhance shareholder value”.

It also added that there is no assurance that any agreement may be reached even though it may enter into discussions with various parties from time to time.

The print and media giant seems to be implying that something may be brewing, but that it could not disclose any details at the moment.

Investors who felt buoyed by the news of the vaccine thus bid up SPH’s shares strongly even in the absence of any confirmed good news from the group.

What SPH had announced back in August was a restructuring of its media division that involved 140 staff.

Its full fiscal year 2020 earnings also saw operating profit plunging by 41% year on year, while a downward revaluation of its investment properties dragged the group into its first-ever full-year loss of S$83.7 million.

The full-year dividend was slashed from S$0.12 to just S$0.025 in light of the challenges.

SPH’s AGM is coming up tomorrow (27 November), so investors may wish to wait for the minutes to be released to find out if there was any mention of further restructuring.

Keppel rejigs its management team

As for SMM, its share price surge seemed to be somewhat connected with a recent announcement from Keppel Corporation Limited (SGX: BN4).

On 23 November, Keppel announced a slew of leadership changes for its various business units.

These new leaders are part of the team that formulated Keppel’s “Vision 2030”, where the group laid-out a 10-year plan with strategic initiatives to enable the group to evolve and improve its business performance.

Rumours of a possible merger

SMM’s share price had surged in tandem with the release of Keppel’s announcement, generating chatter as to whether there may be a merger on the cards.

Recall that SMM had just completed its massive rights issue back in June at S$0.20 per rights share, while the group also received a cash infusion of S$600 million from Temasek Holdings to shore up its weak balance sheet.

Even with the recent surge in its share price, SMM’s shares are still down 70% year to date as oil prices saw a sharp plunge back in April.

In a business update released by the group recently, it reported that it continued to incur losses for the third quarter due to low business volume and execution delays.

The good news is that its operating yard workforce is now almost back to full levels.

However, SMM did warn that it expects losses to continue into the fourth quarter.

Singapore Exchange Limited (SGX: S68) has not queried the oil and gas giant on the sharp rise in share price, and SMM has also not volunteered any further information either.

Get Smart: The disconnect between share price and business performance

From the two examples above, it seems that the surge in share price came out of the blue without any valid explanation.

Investors need to realise that share prices and business performance are not always perfectly correlated.

This is especially so in the short-term as share prices may be heavily influenced by investor psychology, emotions and overall sentiment.

In the long-term, however, share prices will likely match their business performance.

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Disclaimer: Royston Yang owns shares in Singapore Exchange Limited.

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