Following my post earlier this month (here) on Vicom's Q1 FY15 result, the share price has dropped and I took this chance to accumulate by purchasing 2,000 shares at a price of $5.96. I don't have too much to update regarding the nature of the business that I have written on previously, so this is more on accumulating on opportunities when I see price weakness looming.
Based on the Q1 results, I estimate that they will come up to around 38 cents EPS for this year, which translates to about just over 10% growth year on year. Assuming the same payout ratio of 80% is maintained for this year and given their track record in increasing dividends every year, this could translate to a dividend of about 30 cents/share or 5.1% yield based on my above entry price. Hey, that's better than most of the blue chip companies that people are interested in that yields less than 5% but have a much higher payout ratio. Think those companies such as the telcos, SPH, SIA Eng, ST Eng, etc. Given that this is an SG50 year, they might even give out more as special dividend with their cash balance looks to burst the $100M point this year. But just take it with a pinch of salt.
Forward price to earnings based on my estimate at current price would translate into about 15.7x, which is very decent for a company with Vicom type of business moat. Even looking at the past couple of years, you are not going to get anywhere much cheaper than what it is now, unless earnings dipped severely or recession looms. Parents company CDG is trading at around 22x, so this gives a rough indication of what investors should be expecting.
| 2011 | 2012 | 2013 | 2014 | 2015* | |
|---|---|---|---|---|---|
| EPS (cents) | 28.7 | 30.0 | 32.2 | 34.0 | 38.0 |
| Growth % | - | 4.3% | 7.4% | 5.9% | 11.7% |
| Dividend (cents) | 17.6 | 18.2 | 22.5 | 27.0 | - |
| Payout Ratio | 61.3% | 60.8% | 69.9% | 79.1% | - |
| Cash & Cash Equivalent ($m) | % of Total Asset | CAPEX Requirement ($m) | Net FCF ($m) | |
|---|---|---|---|---|
| 2011 | 55.2 | 41.2% | (12.2) | 22.3 |
| 2012 | 66.0 | 45.5% | (4.6) | 26.0 |
| 2013 | 78.5 | 49.6% | (3.9) | 28.5 |
| 2014 | 91.0 | 53.8% | (5.1) | 32.6 |
| 2015* | 98.0 | 55.3% | (2.2) | - |
As I had previously mentioned in my previous couple of articles on Vicom, I like the company because it has a very good core business model of people coming to Vicom for services rather than the company having to source out for demand. The nature of the landscape of the vehicle population in Singapore also means that it is unlikely to decrease, even though growth might be stalling over the next couple of years.
With their expertise in the testing and inspection services in the vehicle segments, they have also translate this expertise to the non-vehicle segments where they are expanding into the various O&G and construction industries.
Capex requirement for both the vehicle and non-vehicle segments remains low, which is another reason why I like the company. This means that they are able to free up most of the free cash flow that goes into the huge cash balance they already had. Most of the expenses should come from the salary overhead and as long as they can maintain this (which is not very difficult based on my experience to control), then EBITDA margin should stay at about the same region. In any case, they've got a very strong EBITDA margin to begin with at above 40%.
Vested with a total of 8,000 shares as of writing.
