I just wanted to quickly update on the latest announcement for the Q2 results.
Nothing surprising in general other than what I have previously discussed which you can view here on the vehicle and non-vehicle segment.
Topline growth looks quite evidently and seems to be muted now, after years and years of consistent growth. The management has somewhat outlined that growth in the vehicle segment are likely to slow down, especially with the carmageddon wave of deregistering coming in the next few years to come.
The black horse was always going to come from the Setsco segment, which has grown bigger over the years and now contributed almost 2/3 of the revenue and 1/3 of the total profitability. Unfortunately, the management has also guided that growth is going to fall as the industries they are servicing are experiencing a slowdown, probably a global phenomenon that everything is going to fall apart pretty soon. Maybe.
The company has maintained an interim dividend of 8.75 cents/share which will be payable by this month. I foresee full year dividends to come at around 28 cents/share, a slight increase from the previous year, though do take note that it represents almost an 80% payout from its earnings.
Balance sheet continues to look very strong, with cash equivalent having more than 50% of the overall assets. I'd love to see them doing something with the cash though there isn't really anything that they can do other than keeping them in their balance sheet for now.
Final Thoughts
I'm vested with 8,000 shares and am likely to keep the shares for now.
The business though slowing down has proven time and again that the business model is working well and free cash flow generating capability remains very strong with the low capex they are incurring. Both the vehicle and non-vehicle segment provides servicing, so majority of the costs will already be accounted for in the overhead costs, and with that they are still able to generate an EBITDA margin of 34%. That is a very strong model we are talking about.
I hope this doesn't go in the way of Super Group or Osim, both of which has been on an uptrend and one poor quarterly results send them down the entire way.
Let's see how it pans out. This remains one of my core holdings for now.
