All of us would have visited a supermarket at some point in our lives. Some of us make it a weekly pilgrimage, picking up the week?s necessities from the closest to our home or workplace. When most of us visit the supermarket, our minds tend to be filled with a list of items we have to stock up on. How often do we stop to think if the store we are frequently is a business that we might own a share of? Let?s take a look at two…
All of us would have visited a supermarket at some point in our lives. Some of us make it a weekly pilgrimage, picking up the week’s necessities from the closest to our home or workplace. When most of us visit the supermarket, our minds tend to be filled with a list of items we have to stock up on. How often do we stop to think if the store we are frequently is a business that we might own a share of? Let’s take a look at two such businesses listed on the Singapore Exchange.
The first company to be featured is Dairy Farm International Holdings Limited (SGX: D01). Dairy Farm operates stores that include the Giant, Cold Storage and Jasons MarketPlace brand in Singapore and the region. It is interesting to note that Dairy Farm is the sixth largest listed grocer in the world in terms of market capitalisation.
The Giant brand is a chain of hypermarkets and supermarkets that has established a big reputation for cost-savings. Cold Storage is the island’s oldest established supermarket, started in 1903, with a chain of 49 outlets in Singapore while MarketPlace is a high-end, full service supermarket.
The revenue from Financial Year (FY) 2003 to 2012 has grown at a compounded annual growth rate (CAGR) of 12.3% per annum while the net profits grew at 15.2% per year during the same period. Dairy Farm achieved 12% sales CAGR during 2008-11, higher than peers’ average of 8% and it has not shown any earnings decline over the last 10 years.
The net margins have averaged 4.8%, ROA is at an average of 12% while the ROE is at an average of 69% from FY2003 to FY2012.
The cash flow from operations for FY2012 was at $698 million while the capital expenditure was at $389 million. Thus, the free cash flow generated was at $308 million. Dairy Farm has been generating consistent free cash flow from FY2003 to FY2012. This enables it to pay solid dividends to its shareholders. For FY2012, Dairy Farm paid out around 60% of its net profits as dividends.
Diary Farm can ride on ASEAN’s growth story. With accelerating income growth and rapid urbanisation, its markets in Philippines, Indonesia, Brunei, Vietnam and Cambodia can provide the foundation for Dairy Farm’s next phase of growth.
The next company to be showcased is Sheng Siong Group Limited (SGX: OV8). Sheng Siong went public in August 2011 and operates both “wet and dry” markets in its stores.
Its revenue from FY2011 to FY2012 grew at 10.2% due to opening of new stores and improved comparable same store sales while the net profits expanded 53%.
The net margins was at 6.5% in FY2012 while it was at 4.7% in FY2011. The improvement in net profit margin was due to cost savings brought about from its Mandai Link distribution centre and stringent cost controls.
The ROA was at 17.2% and ROE was at 27.5% for FY2012.
The cash flow from operations for FY2012 was at $33.8 million while the capital expenditure was at $12.2 million. $21.6 million of free cash flow was generated. Sheng Siong paid out 90% of its net earnings as dividends for FY2012.
Sheng Siong’s caters to the low- to mid-end supermarket segment. With more public housing coming up in our island, Sheng Siong has potential to cater to these conclaves by setting up stores there. The company has also growth opportunities overseas, such as in Malaysia.
Grocery businesses are defensive and thus, do well even during a recession. Dairy Farm and Sheng Siong cater to a wide range of demographics from the low-end to the high-end. Investors get good exposure to the full suite of services offered by these companies.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo , Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool’s purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.