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I recently added Centurion Corporation Limited to my investment portfolio at 38c a share and I am pleased to learn that I will be rewarded with a dividend per share (DPS) of 1c which is payable on 19 May 2017.
An annual DPS of 2c could be the new norm for Centurion Corporation Limited if their business continues to do well, well enough to offset any increase in interest expense.
If this should be the case, I would be enjoying a dividend yield of 5.26% on cost and for a growing business too.
I mentioned in my last blog on Centurion Corporation Limited that, although manageable, its high level of borrowings is a concern. To allay concerns, its operational cash flow must remain strong.
At the time, I said its interest cover ratio was 3.4x and that it could weaken to 2.55x if interest rate should increase by 1%.
So, this is something I will keep an eye on as Centurion Corporation Limited reports its quarterly results for 2017 in the coming months. We want to see that its level of debt remains manageable.
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Added Centurion Corporation Limited.
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Centurion Corporation Limited has been offered by the Ministry of National Development to extend the lease of Westlite Tuas for 9 months from 29 April 2017, being the expiration date of the existing lease.
The short term extension will expire on 29 January 2018 with no certainty of a renewal. We estimate the Westlite Tuas generates a quarterly gross revenue of c.SGD6mn per quarter so we have revised our FY17F revenue from SGD113mn to SGD131mn to reflect the additional three quarters of contribution by Westlite Tuas.
Previously we had assumed that the lease of Westlite Tuas will not be renewed so an extension of lease is a bonus to Centurion.
Therefore we do not rule out a special dividend this year as we estimate the 9 months lease extension for Westlite Tuas would add c.SGD7mn to net profit.
However, Centurion has a high Net Debt to Equity of 145% as of 4Q16 (4Q14 Net Debt to
Equity was 94%) which would make its earnings vulnerable to higher interest rates.
We estimate that c.70% of its borrowings are in Singapore Dollars. But the low SIBOR and SOR rates, despite pressure from rising Fed Fund rates, could help Centurion keep its cost of debt stable at c.3% and interest coverage ratio c.3x in FY17F.
We assume that Centurion will not be making big ticket investments in FY17 and would focus on repaying debt and improve dividends.
Source: Phillip Capital, 16 March 2017.
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