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VICOM: Initiated long position at $5.71.

Monday, August 24, 2015

I drive and I own a car. So, I should be interested in VICOM. Sounds straightforward enough.

I have been looking at it for a year or so but found that the valuation was a bit rich.





During one of the evenings with AK and friends, we had a lively discussion regarding VICOM's future too.

As is the case with any asset, when everybody wants a piece of it, price goes up. VICOM's price skyrocketed not too long ago. 

At those prices, its PE ratio was closer to 20x. I wasn't prepared to pay that high a PE ratio for the stock. 






It wasn't too long ago that the PE ratio was closer to 15x, I observed.




2014's EPS was 34c. Assuming 5% growth in 2015, EPS could be 35.7c this year. 

A 15x PE ratio would give us a fair value of $5.36 or so per share.




Assuming a 50% pay out ratio, we could see a DPS of 18c which would give a dividend yield of 3.35% in the year 2015. 

It isn't a sexy proposition, admittedly, especially when we expect risk free rates to rise in future.



Based on technical analysis, during an "Evening with AK and friends", I mentioned that VICOM could retreat to $5.50 a share which is where the share price might find support from a golden ratio (161.8%) if we believe in Fibo lines.




In the meantime, looking at the charts, we see possible supports at $5.82, $5.70 and $5.61. These are possible nibbling points.




This morning, my smallish overnight BUY order was filled.

Related post:
Have a plan, your own plan.

16 comments:

yeh said...

hi ak
you are buying your share at STI great sales.

AK71 said...

Hi yeh,

I would buy more if the stock should go even lower in price. :)

ThinkNotLeft said...

Hi AK, how about the local banks? Two of them gives 4% yield. Anyway, I also bought Religare today, but I have more Reli bought at $0.99.

AK71 said...

Hi TNL,

My plate is very full at the moment. So many things to buy. I don't know if I would be buying into the local banks yet...

AK71 said...

Reporting period 1 July 2015 to 30 September 2015

1.Revenue came in at $25.4 million for the third-quarter, down 6% from the same period a year ago. This result may not be surprising, given the caution that the management team had sounded in the previous quarter.

2.Although revenue for the test and inspection firm went in reverse, net profit for the third quarter had increased by 3% year-on-year to $7.5 million. Vicom’s bottom-line had benefitted from sharply lower operating costs and higher interest income.

3.Earnings per share (EPS) also went up by 3% from 8.08 cents in the third quarter last year to 8.32 cents in the reporting quarter.

4.Cash flow from operations came in at $9.3 million for the third quarter of 2015 and capital expenditures clocked in at $1.2 million. The low capex gave Vicom $8.1 million in free cash flow, down slightly from the free cash flow of $10.7 million seen a year ago ($11.4 million in cash flow from operations and $658,000 in capex).

5.As of 30 September 2015, Vicom had $91 million in cash and equivalents and no debt. This is an increase from the net cash balance of $83.1 million recorded a year ago.

Source:
https://www.fool.sg/2015/11/12/vicom-limiteds-latest-earnings-revenue-shifts-into-reverse/

betta man said...

Vicom has touched 52 week low of $5.69 at the point of writing with a PE ratio of about 16.

FY15 full year dividend is 28.5 cents. If this dividend is maintained, it gives a yield of 5%.

Would this be a good entry point ? Please talk to yourself. Thanks!

betta man said...

Vicom has hit $5.69 (52 weeks low) at the point of writing. P/E ratio is about 16 with training dividend yield of 5%.

Would this be a good entry point ? Please talk to yourself :)

AK71 said...

Hi betta man,

I have been nibbling. ;p

AK71 said...

VICOM's dividend policy revised to a payout ratio of 90% of net profit, up from a payout ratio of 50%.

Interim dividend of 13.12 cents declared and to be paid on 23 August.

Estimate EPS to be 36c in 2017.

A 90% payout translates to a dividend yield of 5.67% based on my entry price of $5.71 a share.

http://infopub.sgx.com/FileOpen/VICOM_2Q2017.ashx?App=Announcement&FileID=465802

AK71 said...

Kong Siang Ching:
Hi AK, just curious why EPS estimate is 36c, not 14.58c x 2 (1H 2017 EPS annualised)?

AK:
Alamak. I calculated salah. So, DPS is 27c and yield on my entry price is 4.72% only. So sad. :(

Harold11 harold1 said...

Hi AK,

Any concern due to the declining taxi fleet in singapore? Seems like it will affect the revenue of vicom as taxi are inspected every 6 months compared to phv which are inspected every 2 years.

And can share any plan or insight of wisom for vicom? Thanks AK.

AK71 said...

Hi Harold,

There should be some impact but it should not be earth shattering. I don't think it will cause a major decrease in revenue for VICOM.

VICOM also retains some earnings yearly and with a strong net cash position, as an investment for income, it should be pretty reliable.

pirate said...

Hi AK

What is your view on the impact on Vicom for the zero car growth come Feb 2018?

AK71 said...

Hi pirate,

It depends on your reason for investing in VICOM. If you are investing for growth, then, you should be worried. As an investment for income, I am quite comfortable with VICOM.

Kevin said...

Hi AK and pirate,

They can always increase the car inspection fees to cushion the zero car growth "impact" as they are operating a monopoly business. ;)

AK71 said...

Hi Kevin,

I like that idea very much!

Kamsamidah! ;)

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