SingPost may steer clear of large acquisitions after closing painful US e-commerce chapter

Capex could potentially moderate from FY2020 onwards.

SingPost is unlikely to pursue massive acquisitions or investments as the company takes a more prudent capital approach after an unsuccessful attempt to sell its US e-commerce business, according to analysts.

Around 105 interested parties have shown interest in buying the company’s US subsidiaries, Jagged Peak and TradeGlobal, which was narrowed down to two non-binding offers. However, the company ended up rejecting all offers, citing that they were all “commercially unfeasible” and has filed for voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code.

Also read: Sale of loss-making e-commerce business could push SingPost earnings by up to 20.3%

“In our view, SingPost is unlikely to obtain material cash from the asset sales,” S&P wrote in a note. “Depending on Chapter 11 proceedings, SingPost could be held accountable if the liabilities at TradeGlobal and Jagged Peak exceed the proceeds from the sales,” it said, adding that capital expenditures could moderate from FY2020 onwards.

Despite ongoing losses and professional fees that will be incurred as bankruptcy proceedings go on, the deconsolidation of its US e-commerce business is poised to improve the SingPost EBITDA since exiting the US market would free up resources and management attention for its operations in Asia Pacific, according to S&P.

“On a preliminary basis, we now forecast SingPost to generate up to $260m in EBITDA in fiscal 2020, pro forma of the deconsolidation, and about $270m in 2021. This will translate to adjusted debt to EBITDA of 1.4x in fiscal 2020 and 1.3x in 2021. This compares to our previous estimate, prior to the divestment attempt, of 1.7x in 2020 and 1.4x in 2021,” S&P said.

SingPost first ventured into the US e-commerce business in October 2015, with an initial stake acquisition of 71% in Jagged Peak ($22.5m), followed by a 96.3% stake purchase of TradeGlobal ($236m) but US operations have been largely unprofitable for the firm amidst fierce competition.

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