Sunday, 16 July 2017

My "Strategy" for Netlink Trust IPO

I gave a one chilli rating for Netlink NBN Trust IPO this week. The write up is here.

Business Trusts haven't done as well as REITs in general in Singapore🤔  - probably because Business Trust started on a wrong foot and left a bad taste on investors. The first business trust to be listed was First Ship Least Trust and that left a very sour taste on investors as evidenced by the -19% since listing (ouch! see table compiled by Edge below). 


The Edge compiled a list of Business Trusts performance and those that performed well are "real-estate" linked like Croesus and Viva Industrial Trust as well as perhaps, Hospitality and Healthcare Assets. One of the worst performing was Hutchison Port (you just can't bet against LKS!). 

What can you actually glean from the above table? 

Assets that perform well have earnings that are more predictable and sticky. In other words, the cash flows generated are predictable (long term rental leases). Assets that relied on good weather (Accordia to play golf) or on ships visiting the ports (Hutchison) are less predictable and forecasting recurring revenue is challenging, not to mention rival golf courses or ports. Investors at the end of the day, like safe, consistent returns. Whether it is "sexy" or not is another matter altogether 😋


How do i see Netlink NBN Trust IPO?

Is the revenue recurring and stable? It is like the gate keeper. All broadband players Singtel, Starhub, M1, MyRepublic (and what have you eventually) will need to pay the gatekeeper a connection fee and a monthly maintenance fee. These are big boys, so the possibility of bad debt is probably low. If consumers switch from one broadband provider to another, Netlink don't really care as long as they continue to use broadband. So i would say yes. Will government lower the regulated fee - the government will adjust the fee from time to time depending on the number of connections etc, but it is unlikely they will "kill this company" as too many local retail investors are vested in this. So net net, i think revenue is pretty stable, consistent and recurring but I am not going to price in any growth here.

Will the technology be replaced? Personally, i think Broadband is the way too go. It is hard to imagine using ADSL or other slower technology as now is the age of IoT (Internet of Things). Will there be a competing technology to replace fibre broadband? Probably one day it is possible but not in the next 20 years (according to the prospectus?). Assuming i invest 100,000 shares ($81,000) which generated 5.5% yield per year ($4,455), it will pay itself back in 18 years. 

Will it form part of my retirement portfolio? If this IPO has been priced at the top end of the range, the answer is a resounding no. Now that it is priced at 81 cents, i will actually consider applying for some. Given the huge public tranche, i give the placement tranche a miss (my broker promised to give me any number of shares i requested. Lol). Over the weekend, I managed to convince Mrs to part with her "secretly stashed away cash" to apply for some shares in the IPO.

How am i adding Netlink Trust IPO in our retirement plan?

I last updated in March this year that the projected passive income for 2017 is around $40,717. The link is here. I recently "re-underwrite" my portfolio due to forex movements etc and I intend to add about 100,000 shares of Netlink Trust IPO in our retirement portfolio, using the assumed yield of 5.43%. This will add about $4,398 to my yearly income, bringing the projected annual income to around $45k (target for the year is $60,000, still a long way to go!). The "pro-forma" monthly income, assuming i managed to add 100,000 shares of Netlink is below (l have also learn how to use pro-forma from all the prospectus i have been reading 😂): 


Since Mrs has applied for 50,000 shares and i have no idea how many shares she will be allotted (if it is none than it's fated. hahaha), i will adopt a "wait-and-see" attitude. The reason why i am not applying for the IPO using "cash" is because i have a lot of idle cash (around $74k before this year's contribution) sitting in my SRS account waiting to be deployed. If it opens below IPO price next week, i will use the cash in my SRS account to top up to 100,000 shares. If it opens above, then i will just continue to wait. After all, the next interest is only payable by June next year. I can afford to wait since the pricing is not going to run too far ahead. I will be worried if investors treat Netlink as a growth stock. I look at it more as a Broadband Perps.


Happy SRSing 😃

2 comments:

  1. Hi in respect of your comment:"my broker promised to give me any number of shares i requested." what's the minimum shares required normally for an IPO to have this privilege?

    ReplyDelete
    Replies
    1. This case a bit unusual. Supply > demand for retail placement

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