I’ve recently purchased some small lots of Vicom Ltd at an average price of S$4.91 (See my transactions here).
I’ve been bracing up for more defensive plays in recent weeks in view of the market euphoria from DowJones and S&P to STI. I tend to be a bit cautious when everyone is too optimistic. I feel like it is about time I should rebalance the higher gearing shares in my portfolio to those with stronger balance sheet in view of the rising interest rates we might probably see by end of the year. Neratel, ST Eng, Boustead and most recently added, Vicom are a few exemplary leaders in my new look portfolio with a very strong balance sheet – net cash, no debt.
Why did I purchase Vicom?
Vicom’s nature of business is no stranger to anyone.
It has a great business moat with steady earnings profile and strong balance sheet. Most recently, it announces a decent Q1 2013 results with 6.7% increase in net profit compared to Q1 2012. Whilst operating margin has decreased slightly from 35.2% to 34.8%, EPS has increased moderately at 6%. Annualised Free Cash Flow (FCF) for the year looks to be in the range of S$26M while dividends paid out (payout ratio of 60%) is around S$16M. This means that the rest of the S$10M will go into Vicom’s Cash and cash equivalent which at the end of Q1 2013, has increased to a record high of S$71.7 Million.
As COE prices continue to be volatile, there will be an increase of older cars on the road requiring annual inspections. This will give recurring business income to Vicom.
If there is one thing negative about Vicom, it is that they are trading at their historical P/E high of 16.07. Comfortdelgro P/E ratio is at 16.69 while SMRT P/E ratio is at 26.50. So depending on how you are looking at it, you can view them as “cheap” or “expensive”.
I am not a true and blue advocate of a value investor myself. Some people would love to buy a normal company at a great price. I think in Vicom I am buying a great company at a normal price.
For a thorough analysis on Vicom, you can view here by a fellow blogger which he did last year. I thought the analysis was very thorough and impressive.