Friday, October 10, 2008

Utilities/Infrastructure - Cityspring (In The Spot Light)

Why the drastic drop in price, up to -20% within the first 2 hours of trading on 10 Oct 2008?
SGdividends believe it is the result of someone shorting it. Why? Cos our shares have been borrowed through the Share Borrowing and Lending Program by a brokerage firm custodising it. ( To those who dont understand what shorting means, heres a primer. People can short the stock naked or covered. Naked short means selling first without owning a stock or having borrowed it. It is currently penalised by SGX. Covered short means selling first without owning it but having borrowed it and this will not be penalised by SGX. The purpose of shorting is to depress the prices, and then buying it back at a cheaper price to earn a profit.)

Cityspring holds utilities or infrastructure assets and demand for such services are generally recession-proof as electricity, water, e.t.c are a necessity. The only reason for such a decline we feel, is that they have large debts to repay (normal for such asset centric businesses) and people are afraid that they cannot repay their loans at this time when banks are unwilling to lend. But, Cityspring is backed by Temasek so this reason may not be valid, in our humble opinion. Basically, we believe that the fundamentals for this company is unchanged. In fact, a recent Business Times article featured their CEO hinting of acquisitions at a later date as valuations for such assets are still quite high. Therefore, we believe this drop is due to some manipulation taking advantage of this crisis situation and those who have bought it during this drop have made a good decision. (See the article on sectoral investingbelow)

A stable company with a strong backing with a consistent ( increasing actually from 0.78DPU to 1.75DPU ) dividends payout...yummy. Lets say you buy at the low of 0.52, your dividend yield is around 13%!.
High was 0.675. Low was 0.52 .Closing price is 0.6. That short seller sure made some money!

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