Recently, while I was researching stocks to add to my portfolio, I came across a few Singapore-listed companies that I thought were interesting. A quick search on the internet also showed that these companies are not extensively covered by big-name investment analysts. (singapore penny stocks)
In this article, I will touch on the first company that I like: Advancer Global Ltd(SGX: 43Q). Let’s jump in to find out more about this company and the reasons why I like it.
The business
As a quick background, Advancer Global, which listed in the Singapore stock market in July 2016, is a workforce solutions and services provider in Singapore. It has three business divisions: employment services; facilities management services; and security services.
The company’s services are generally required in both good and bad economic times. Security service is one such example which is defensive in nature (no pun intended). Also, with many working adults not having the time to upkeep their homes and tend to their children and elderly parents, foreign domestic workers are in demand.
The financial numbers
One of the main things to look at before investing in a company is its financial performance. For the full year ended 31 December 2017, Advancer Global’s revenue surged 28.2% year-on-year to S$65.3 million, with all three business divisions performing well for the year. The higher revenue was largely due to increased placements of foreign domestic workers to households in Singapore, a full year's worth of contributions from subsidiaries acquired in the second half of 2016, and higher aggregate service fees charged for on-going security services projects. Meanwhile, net profit attributable to shareholders grew 14.2% to S$3.1 million.
Advancer Global’s customer retention rates for the facilities management and the security services businesses were also admirably high at 87.2% and 93.9%, respectively.
Furthermore, the company has an asset-light business model with low capital expenditure needs. From its initial public offering (IPO) prospectus, it had a capital expenditure of below S$500,000 in each year from 2013 to 2015.
In 2017, even though cash flow from operations tumbled 32.7% to S$2.9 million, free cash flow came in at a commendable S$2.0 million. The free cash flow generated can be used by the company to reinvest into its own business, acquire other businesses, dish out dividends to its shareholders, buy back its own shares, or pay off debt.
Advancer Global has a strong balance sheet as well, which would enable the company to tide through tough economic conditions. As of 31 December 2017, Advancer Global had S$8.0 million in cash and cash equivalents, and total debt of just S$1.9 million. This gives a net cash position of S$6.1 million.
And lastly, Advancer Global has room to grow its dividends, in my view. In 2017, its total dividend was 0.83 Singapore cents per share, representing a dividend payout ratio of just 49.1%. Generally, if a company has a low payout ratio (say, below 80%), it has room for error to maintain its dividend even if its profits were to drop in the future. Source
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