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Dhaka Tribune

Singapore Post (SGX: S08) up 6% on stamp price rises - Yep, that’ll do it

The government has said that it may allow stamp prices to rise - SingPost jumps in response

Update : 06 Jul 2023, 12:57 PM

Singapore Post (SGX: S08) shares are up 6% today. S08 shares have jumped because government has said that maybe - and note the maybe - stamp prices might be allowed to rise. This is one of those problems with investing in a regulated stock - the returns to the stock depend so much on who is regulating and how. Now it's true that the government of Singapore tends to do a pretty good job in its regulating but no bureaucracy is perfect.

 For example, Singapore Post shares are down 60% over the past 5 years. Which, given inflation, is really not a good result at all. “ Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example the Singapore Post Limited (SGX:S08) share price dropped 64% over five years. That's not a lot of fun for true believers. And we doubt long term believers are the only worried holders, since the stock price has declined 32% over the last twelve months.”

 The problem here is one of politics, not one of economics. For when government decisions are made it is always the politics that is going to win out over the economics. Of course postal prices should be enough to pay for the postal system plus a return on the capital invested in it. This is true whether it's a cooperative, a government company or a private sector and capitalist company. But when government gets to set postal prices the political calculation is that everyone who posts a letter will get pissed at a rise in the price of stamps. The people made happy will be those few shareholders affected. And people who post letters have more votes than shareholders at the next elections. It's just a standard problem in political economy, the divergence of interests here. 

 No, not the divergence of users and capitalists, but that the political price setters are going to go with votes, not economics or business.

 Singapore Post share price from SGX

 This then becomes good news for S08: “SINGAPORE - The Government will consider allowing Singapore Post (SingPost) to introduce postage rate adjustments to “better reflect the cost of letter mail business” following a sharp decline in domestic letter volumes since the Covid-19 pandemic.  Minister of State for Communications and Information Tan Kiat How, announcing this in Parliament on Wednesday, said: “Domestic postage rates have largely been held constant since 2014, apart from a small increase at the start of this year. “The upcoming adjustments will have to be of a sufficient degree to allow SingPost's business model to remain viable, without requiring direct government funding.””#

 Now that is good business sense. The marginal cost of another letter is near zero - pretty much all of the costs of a postal service are in having the infrastructure to have any postal service at all. 

 But it's still true that Singapore Post is a price regulated utility therefore profit margins are going to depend upon the vagaries of politics.

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