Swire Pacific B

[wanderer101]

This is probably off-topic as it isn't London-listed. It doesn't count as an HYP share as it doesn't have that high a yield and has just cut its dividend.
But despite those multiple strikes, some may still be interested as a diversification option and for recovery.

For your consideration, Swire Pacific B:

Hong Kong-listed with ticker 0087
Share price (21/4/17): 13.06 HKD
p/e: 10.2
trailing yield: 3.21%
market cap: 106 billion HKD, around 13 bn USD
figures from google finance, adjusted (see below)

Swires is one of the old trading houses of Hong Kong. These days it is a diversified conglomerate which has activities in airlines (Cathay Pacific), property, hotels, shipping and oilfield services, beverages (it is a major Coca-Cola bottler in China) and food, motors, etc etc etc. It is heavily exposed to China, which some will see as a negative (it would have been a positive at times).

To note: many data providers (including Google) show incorrect figures for this share as they apply the A share earnings and dividend figures (HK listed, ticker 0019) to the B shares.
The only differences between the A and B shares are that the A shares have five times the entitlements of the B shares, and are more liquid.
The liquidity issue isn't significant enough to matter for private investors, but it does for institutions, which means the B shares tend to trade at a discount to their implied value.
The A shares closed today at HKD 74, which implies a value for the B shares of HKD 14.8. So they are available at nearly 12 percent discount. The difference varies over time but this is one of the largest I have seen in recent years.
(If I recall correctly I believe they each have same voting rights and the B shares may be one way in which the Swire family retain control).

The company has hit trading difficulties in recent years in several of its business areas, 2016 FY announcement here and much of it isn't pretty: http://www.swirepacific.com/en/media/press/p170316.pdf
Profits slumped by nearly 70 percent last year and the final dividend (which they call 'second interim') was cut by about 60 percent.

Management expresses says it is tackling the issues and expresses confidence for the long term. Yes they would say that. But this firm has been around for 200 years. (although past performance may not etc etc). And it still made more than HKD 3 billion (1 USD = 7.8 HKD).

The shares have not been much lower than this since mid-2009. Obviously there are good reasons for it to be out of favour, but I like a bargain and if it manages to claw back even half of the profit fall it promises a significantly higher share price (and dividends) in future.

I have today bought a half-unit for long-term recovery. Welcome your views, whether for or against.

regards wand

[Dod1010]

I knew this company well having worked for it for much of my career. It is an important arm of the worldwide Swire Group and yes the Swire family, through John Swire and Sons own a large slug of the B shares in order to retain control.

I have held them from time to time but as a trading deal not my usual LTBH because they have no compunction about cutting the dividend when they have to. Cathay Pacific is the real problem I think because it is either feast or famine (the latter as of now) Like all airlines it needs huge capital investment and makes a lot of money once it exceeds its break even load factor, in fact at that stage most revenue is pure profit but the reverse is also true so its results are very volatile. Swire has managed the airline almost from the start so they have plenty of experience but it has a China political exposure nowadays. I do not know though whether that inhibits them in any way.
Swire Pac's results are made worse by its exposure to oil services. They have made a lot of money there for many years but the oil slump has hit that division badly as the results show.

Like most family companies, they are running it for the very long term and it is very conservative with relatively low borrowings. So now might be a good time to buy but I would be prepared to trade if you see a decent profit. I am sure they will turn it round but it will not be that easy.

Dod

[YeeWo]

I knew this company well having worked for it for much of my career........I have held them from time to time but as a trading deal not my usual LTBH because they have no compunction about cutting the dividend when they have to. Cathay Pacific is the real problem I think because it is either feast or famine (the latter as of now) Like all airlines it needs huge capital investment and makes a lot of money once it exceeds its break even load factor, in fact at that stage most revenue is pure profit but the reverse is also true so its results are very volatile. Swire has managed the airline almost from the start so they have plenty of experience but it has a China political exposure nowadays. I do not know though whether that inhibits them in any way.
Swire Pac's results are made worse by its exposure to oil services. They have made a lot of money there for many years but the oil slump has hit that division badly as the results show.
Like most family companies, they are running it for the very long term and it is very conservative with relatively low borrowings. So now might be a good time to buy but I would be prepared to trade if you see a decent profit. I am sure they will turn it round but it will not be that easy.
Dod

- Via which brokerage do you hold Swire shares in the UK?
- I totally agree on the "feast or famine" CX analysis. I think is probably at the Buy stage currently. A new A350 fleet and expansion at Chek Lap Kok should give Cathay a serious competitive leg-up!
- Which bit of Swires did you work for? I really admire TaiKoos' long term emphasis. - Very Good Capitalists!

[dspp]

It may be worth keeping an eye on the CP discussions on PPRUNE if Swire is on your watch list.

http://www.pprune.org/fragrant-harbour-19/

How to interpret the various and longstanding grumblings is quite another matter. It may be a sign of effective hard-nosed management at work, or it may be a sign of imploding customer & staff relations.

regards, dspp

[Dod1010]

Hi YeeWo

If I say too much I could be easily identified so let's just leave it there please.

As for trading in the shares, I have used my contacts in HK and have never tried using a London broker

Dod

[Wordchild]

have you considered Swire Props? maybe a better bet than the parent, certainly got the better balance sheet , a very high quality portfolio of assets both existing and under development, a safe (I would say) and growing dividend unlike the holding company.
I suspect Swire slightly regret listing a minority in their property business, they no longer have the ability to fully leverage those assets. And it's not really worked in terms of unveiling hidden value in the group. I think they would prefer to have 100% of the property business now rather than some of their other assets. I really would not be surprised if they attempt to buy back full control at some point .

[YeeWo]

have you considered Swire Props? maybe a better bet than the parent, certainly got the better balance sheet , a very high quality portfolio of assets both existing and under development, a safe (I would say) and growing dividend unlike the holding company.
I suspect Swire slightly regret listing a minority in their property business, they no longer have the ability to fully leverage those assets. And it's not really worked in terms of unveiling hidden value in the group. I think they would prefer to have 100% of the property business now rather than some of their other assets. I really would not be surprised if they attempt to buy back full control at some point .

- John Swire & Sons is the London based parent.
- Swire Pacific A & B have different voting rights allowing JS&S ultimate control cost effectively.
- 18% of Swire Properties was "re-spun" out of Swire Pacific in 2012.
- Swire Pacific is a Major shareholder in three Hong Kong listed companies: Swire Properties (82%), Cathay Pacific Airways (45%) and HAECO (75%).
- Interestingly at Swire Properties 2012 floatation JS&S held some shares directly which it subsequently sold, consolidating their interest via Swire Pacific.
- I have no doubt Swire will buy back full control if the price is right. It was spun-off in 1972 and then subsequently re-purchased by Swire Pacific.
- I feel the floatation of Swire Properties was to obtain liquidity for some assets held since the 19th century at a fulsome price. Have No Doubt though, the Family @ 59 Buckingham Gate retain control of all of these businesses.
- As a "value" play, I think Cathay Pacific is the share one should take a close look at!

[flyer61]

It may be worth keeping an eye on the CP discussions on PPRUNE if Swire is on your watch list.

http://www.pprune.org/fragrant-harbour-19/

How to interpret the various and longstanding grumblings is quite another matter. It may be a sign of effective hard-nosed management at work, or it may be a sign of imploding customer & staff relations.

regards, dspp

dspp...are you an A scaler by any chance

[dspp]

dspp...are you an A scaler by any chance

not to my knowledge

[TahiPanasDua]

Hi YeeWo

If I say too much I could be easily identified so let's just leave it there please.

As for trading in the shares, I have used my contacts in HK and have never tried using a London broker

Dod

Dod,

I worked briefly for both Cathay Pacific and Swire Properties. Of course, that doesn't mean I have any insight into their present situation. Who knows, maybe our paths crossed.

The Swire group is well managed and will surely survive any current difficulties. However, whilst admittedly a conglomerate, Swire is heavily dependent on only two activities namely aviation and property. Each has it's difficulties at the moment.

Aviation is highly cyclical and Cathay is suffering from huge competition from budget airlines. Not so different from other airlines you might think.

Property in Hong Kong is surely nearing the top of the cycle and will at some point experience the usual dramatic plunge. Swire Props will survive that drop as with all the others but the share price and dividend will suffer for a time.

Swire B shares are a good buy but maybe not at this time.

[Dod1010]

Hi TPD

As you say Cathay and Swire Props are the big influences on the quoted bit of the Swire empire in HK. Both are also quite volatile with the result that they are both good trading shares but not really long term buy and hold which is what I prefer. That of course is why they are in the publicly quoted bit!

Dod