Value + Growth (Raffles Medical, Vicom, Riverstone, Supergroup & ISOTeam)

I once read somewhere that funeral parlour makes the perfect business. Let’s think of it as a boring business with recurring income (all people die someday, so in a way it’s a necessity) and most people would not think twice about spending to get the best services (we always want the best for the deceased).

Much has been written about value growth investing. (here and here)

Boring companies:

I will tell you now that we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement. Buffet

“A company that does boring things is almost as good as a company that has a boring name, and both together is terrific.” Peter Lynch

Let’s start by looking at boring businesses listed on the Singapore Exchange. Perhaps it is wise to invest in boring businesses that serve our everyday needs. For the 5 companies mentioned above, they all fit the bill of boring business. For some of these boring companies (eg. Vicom and ISOTeam) their shares are very thinly traded. And with P/Es of 19 to 24, they might appear expensive.

1) Raffles Medical: It owns and operates a network of family medicine clinics and a tertiary care private hospital.

2) Vicom: Provides motor vehicle evaluation & non-vehicle testing, inspection, and consultancy services.

3) Riverstone: Manufactures and distributes cleanroom and healthcare gloves primarily in Malaysia, Thailand, and China.

4) Supergroup: Manufactures and distributes food and beverage products primarily in Singapore, Southeast Asia, and East Asia.

5) ISOTeam: Upgrading, retrofitting and maintenance of the Built Environment in Singapore.

Except for Supergroup, the rest can be classified as defensive & recurring business.

Value:

Price to book: Much has been written about Raffles Medical and Vicom. Therefore with an approx. price to book of 4.18~4.2, they do not seem undervalued in comparison with the others. On the other end of the spectrum, ISOTeam is relatively unheard of (only recently listed on SGX), hence not surprisingly, its price to book is only 2.35. With the poor performance of Supergroup lately, its price to book is also relatively low, at 2.74.

Debt: Companies with zero debt would also be preferred. Vicom and Riverstone is outstanding in this aspect. Supergroup being the highest. With the uncertainty around interest rates expected to persist for some time, maybe it makes more sense for investors to stick to zero- or low-debt stocks..

EV/EBITDA (Enterprise multiple): As a rule of thumb, any EV/EBITDA below 10 is the sign of a good value. Seems like all these companies pass this test, with ISOTeam having the lowest EV/EBITDA.

 

Growth: Using the Buffett way: To choose among top-notch businesses, buy at reasonable prices. So what is a top notch company?— One which is able to consistently compound its returns at above average rates.

CAGR (Compound Annual Growth Rate)

1) Raffles Medical (in 2013): CAGR of +12.5% pa in the past 5 years

2) Vicom: Five-Year Compound Annual Growth Rate (CAGR). +9.2%.

3) Riverstone: On track to deliver 3-year net profit CAGR of +16%.

4) Supergroup: 10 years(2004-2013) CAGR for Super’s revenue and net profits are 12.47% and 19.06%. However 2014 is a disappointment.

5) ISOTeam: FY10-FY13 net profit CAGR of 29.9%.

It appears ISOTeam has the highest CAGR. Quarterly revenue growth (yoy) for ISOTeam is also at the highest of 44.78%.

 

ROE (Return on Equity)

It pays to invest in companies that generate profits more efficiently than their rivals. ROE can help investors distinguish between companies that are profit creators and those that are profit burners. Looking at the below table Vicom would be an obvious winner followed by ISOTeam (however it is noted that the latter ROE is erratic).

 

In summary, looking at the low PE, EV/EBITDA,high CAGR & relatively high average ROE of ISOTeam, it would appear that ISOTeam shines out among this group. However, its ROE is erratic and it would be better going forward if they can be more consistent.