Who says there is no money to be made in utilities? Just take a look at Singapore Post (SGX: S08), which has delivered a total return of 260% over ten years. That equates to a compound annual growth rate of around 13% a year.
SingPost, as it is affectionately known in the Garden City, boast one of the highest Returns on Equity in the market. The letter and parcel delivery outfit generated a 24% return on shareholder equity last year. By comparison, the 30 largest companies in the Straits Times Index (SGX: ^STI) delivered an average return of 10%.
Singapore Post has managed to do this by achieving a higher Net Income Margin than the market average. At 23% it is about a fifth higher than Singapore’s blue chips. That said, the margin has slipped from 29% two years ago.
SingPost’s Asset Turnover at 0.49, which is the amount of sales it gets for every dollar of asset employed in the business, is roughly the same as other companies. However, the company uses a bit more leverage than other businesses. Its Leverage Ratio of 2.2 is roughly a fifth higher than the market norm. That said, interest payments are adequately covered by operating income.
Putting together the pieces of SingPost’s jigsaw, it is easy to see how the logistics firm delivers. It is the product of a better-than-average Net Income Margin of 23%, a healthy Asset Turnover of 0.49 and a manageable dollop of Leverage of 2.2.
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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.