The following is based on a completely fictional character with real-life businesses – any coincidences are Foolishly coincidental. The Protagonist: John Tan works in a construction company and recently came across www.fool.sg, putting him on the path to being a Fool. He decides to take charge of his own finances and start investing. The Story: It was a normal weekday morning. John left home for work and grabbed his usual cup of coffee and some toast at Toast Box. It was then that a Foolish thought struck him, ‘This place sells great coffee and toast and always seems…
The following is based on a completely fictional character with real-life businesses – any coincidences are Foolishly coincidental.
The Protagonist: John Tan works in a construction company and recently came across www.fool.sg, putting him on the path to being a Fool. He decides to take charge of his own finances and start investing.
The Story: It was a normal weekday morning. John left home for work and grabbed his usual cup of coffee and some toast at Toast Box. It was then that a Foolish thought struck him, ‘This place sells great coffee and toast and always seems to be packed! It might be a good business to invest in. I should open my eyes wider in my daily life”
During his lunch hour, John decided to shop around Orchard road for a gift for his wife’s birthday. The Hour Glass (SGX: E5P) caught his attention with their prominent stores in the area. John felt that the staff were knowledgeable about the watches and provided great service. He also noticed that the store carried prestigious luxury watch brands that no other watch retailers had. A casual chat with the staffs revealed that the average Hour Glass employee spends 9 years with the company, and are paid salaries above the industry average. John had learnt about the importance of good management and company culture in his Foolish adventures and made a mental note to investigate Hour Glass further.
After purchasing the watch, John headed to lunch at Din Tai Fung with his colleague. As usual, the Michelin 1-star Chinese cuisine restaurant was packed. His colleague shared that Breadtalk (SGX: 5DA) owned the rights to Toast Box and Din Tai Fung in Singapore and the region. That’s 2 for the price of 1 – Great!
John had an industry conference to attend after lunch. At the conference, he learnt that a large number of construction companies were obtaining their supplies of concrete and cement from Pan-United (SGX: P52). He noted that Pan-United’s cement was of high quality, and theirr ready-mixed concrete had special, customisable properties.
A couple of thoughts ran through John’s head, ‘Singapore’s government has made it clear that more infrastructural works related to housing and transport will be undertaken. This translates to a higher demand for basic building materials like cement and concrete. Pan-United owns the largest cement supplier in Singapore, United Cement – an uptick in construction activities would be beneficial to them’
Once home and settled on his desk, John immediately started digging into Breadtalk, Hour Glass and Pan-United. Fool.com had taught him that to be truly Foolish, he has to understand the business.
He found out that Breadtalk had grown sales and earnings by 29.8% and 14.5% per year for their last 9 years, with a total of 622 outlets consisting of bakeries, food atriums (such as Food Republic) and restaurants (such as Din Tai Fung) in 16 countries. Management planned to increase their outlet-count to 1000 in 2-3 years’ time, and had set out to double current sales to $1 billion. At a Trailing Twelve Month Price-to-Earnings (TTM PE) and TTM Price-to-Sales (TTM PS) of 18.5 and 0.51 respectively, John figured that Breadtalk is probably reasonably priced to become a winning investment 5 years down the road.
Moving on to Hour Glass, John discovered that Hour Glass’s co-founders collectively own at least 52% of the company, putting their interests squarely in-line with other shareholders. Hour Glass was also trading at a TTM PE and PS of 7.6 and 0.8 respectively. With management on his side; a great company culture; cheap valuation; and new upcoming stores in Hong Kong and Australia, John reasoned that Hour Glass seemed to tick some of the right boxes.
When John reached Pan-United, he noticed that they were in a strong financial position, showing more cash than debt on their balance sheet. He also felt that a well-established pick-and-shovel type of company within the construction industry meant that any increase in construction activity would probably mean good business performances from Pan-United. With more than 80% of their revenue coming from selling concrete and cement, John felt that Pan-United might do well if his read on the construction industry’s future was correct.
Foolish Take-away: Keep your eyes open in your daily life! Invest by buying part ownership of businesses. Since businesses are everywhere, opportunities can be everywhere too.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.