A Recession Proof Business

singapore currencyMost businesses are affected by what is going on in the economy. When economic times are good, they tend to do well. But when the economy is sluggish, they might be adversely affected.

However, some businesses are recession-proof. They seem to do well in both good and tough times. That’s because their goods and services are in demand regardless of what is happening in the wider economy.

Tobacco companies are good examples of recession-proof businesses, and so too are some regulated utilities. Transport companies such as ComfortDelGro (SGX: C52) and SMRT (SGX: C53) may be said to be fairly resilient to what is going on in the economy too. So, they are also quite recession-proof.

Elsewhere, anyone who owns a car may appreciate how recession-proof vehicle-testing companies can be.  After all, if you want to renew your road tax, your vehicle must be inspected and deemed to be road-worthy, if it is over three years old.

In Singapore, car owners can choose between taking their car to Vicom (SGX: V01) or STA to have their cars inspected. There are a total of  nine vehicle inspection centres in Singapore, of which seven  are owned by Vicom.

Vicom has an enviable track record as far as growth is concerned – its revenues have jumped from S$46m in 2004 to S$97m last year. That equates to an average increase of around 10% a year, every year for the last eight years.

($m) 2004 2005 2006 2007 2008 2009 2010 2011 2012
Revenue 46 50 56 64 73 77 83 90 97
Net  Earning 7 8 10 13 15 20 22 25 26

Meanwhile, profits have jumped nearly fourfold over the same period. And let’s not forget that the last eight years includes a global economic recession that kicked off in 2007.

On the face of it, Vicom looks like a business that merits further investigation. It certainly seems to be recession-proof, but then that might go some way to explain why the S$424m vehicle-testing company is valued at a lofty 16 times profit.

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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 Director David Kuo doesn’t own shares in any companies mentioned.