We know that Vicom is a cash-rich company that has made consecutive growth of profits year after year.
However,with the recent announcement of results for Q1 FY14 and with Cash & Cash Equivalent finally reaching top of 50% on the overall total asset, the question is whether the management is going to increase Vicom’s special dividend again this year?
| Cash & Cash Equivalent ($m) | % of Total Asset | CAPEX Requirement ($m) | Net FCF ($m) | |
|---|---|---|---|---|
| 2008 | 28.3 | 31.3% | (4.5) | 13.7 |
| 2009 | 42.5 | 40.6% | (7.9) | 14.7 |
| 2010 | 49.2 | 41.6% | (11.1) | 6.7 |
| 2011 | 55.2 | 41.2% | (12.2) | 5.9 |
| 2012 | 66.0 | 45.5% | (4.6) | 11.0 |
| 2013 | 78.5 | 49.6% | (3.9) | 12.5 |
| 2014* | 85.0 | 51.7% | (1.4) | 6.4 |
*Q1 FY14
A look at their cash and cash equivalent and you would know that the company is holding a humongous piece of cash as an asset here. Based on the annual report for 2013, the company placed most of these cash into fixed deposits yielding an effective interest rate of between 0.33% to 0.85% (2012: 0.48% to 0.85%). If you ask me, that’s not the best capital allocation with interest yielding so low in fixed deposit.
A quick look at their CAPEX requirement and it shows that they require little to maintain its business. The only requirement for CAPEX was for the “Purchase of vehicles, premises and equipment funding from the LTA”. The company has been generating positive cash flow for the past couple of years, contributing to the increase in their cash holdings.
With cash and cash equivalent now representing 51.7% of the total assets, I would actually like to see them distributing more special dividends to shareholders. We know that special dividend has been gradually increasing year on year, and it was only last year that we saw special dividends doubled from 3.2 cents to 6.4 cents, but you get the feeling that investors want more from the company, especially now at current price where the dividend yield is only at 3.7%. Perhaps, investors could allocate these funds at a higher rate than the fixed deposits they are putting at right now.
If I have to make a bold prediction, I reckon we will probably see at least another 50% increase in special dividend this year to 8 cents, assuming no acquisition or any other CAPEX requirement are made. The company should still be able to payout the 8 cents, still maintain their huge allocation of cash, and satisfy those yield hunger investors.
As an investor, I hope it will materialize and if that happens, we’ll probably see its stock price hitting roof beyond the $6 mark really soon.
The ROE has been decreasing as a result of the cash hoard increasing. While it is good to see a burgeoning cash hoard and higher dividends, my wish is for VICOM to properly allocate these funds to generate stronger organic growth or do an earnings accretive M&A. Of course, in the absence of all this, they can also consider a share buy-back.
Hi Musicwhiz
My wish is the same as yours but I think they may have some difficulty identifying organic growth and M&A activity at this point in time. If they have, they might have done it already by now.
I don't like the activity of a buy-back at this point in time when their price is rising. What I think they should do for the best practice is to give back to shareholders. I am still puzzled why they are keeping such a huge hoard of cash losing these cost of capital over time.
Difficult for this company to grow given its business. But it sure is efficient in the use of labour. It's so sticky they can increase the rates for car inspection each year and the car owners wouldn't really notice, nor can do much about it. A rich recurring business especially given our max 10 year car ownership system.
Hi Lizardo
A worry is the De registration of vehicles somewhere between may to aug this year which could affect ots performance. But other than that not much to lose sleep over with
may i know how you got 12.5m as net FCF for 2013? because from their annual report of 2013, Net cash from operating activities= 32,496, net cash used in investing activities=(3,935), would'nt that give me a FCF of 28561?
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