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A Retailer with a Beautiful Record of Great Performance

Located near the City Hall MRT station and situated in the heart of town in Singapore, Funan Digitalife Mall is “Asia’s leading IT shopping mall”. And for visitors to the mall, it’s hard to miss one of its anchor tenants, the Information Technology products retail store Challenger that’s run by Challenger Technologies (SGX: 573).

With over 32 years of history as an IT product retailer, the company today has more than 40 stores in Singapore housed under three different brands: Challenger; Musica; and Valore. The first is more of a one-stop shop that aims to meet almost all the IT-needs of a shopper; the second concept revolves around specialty audio accessories; and lastly, the third is a “private label mobility and lifestyle accessories concept.”

The company has come a long way since 2003, when it had only six outlets in total in Singapore. Its retail footprint wasn’t the only thing that grew though; Challenger Technologies was able to parlay its growing store count into per-share profits that had increased at a compounded annual rate of 11% from 2003 to 2013.

Year

Earnings per share (Singapore cents)

2003

1.74

2004

1.26

2005

1.65

2006

1.55

2007

2.41
2008

1.78

2009

3.22

2010

3.96

2011

4.53

2012

4.69

2013

4.96

Source: S&P Capital IQ

In fact, the company’s corporate performance over the past decade since 2003 has been remarkable given that it has operated with either minimal or no debt, and had also generated great returns on equity of at least 27% in each year. In particular, Challenger Technologies’ consistently high returns on equity could be seen as a business that has the ability to generate very high profits for each shareholder dollar used in the company. 

Year Cash & short-term investments (S$, millions) Total debt
(S$, millions)
Returns on equity
2003 3.84 0 59%
2004 13.1 0.9 27%
2005 10.7 0 27%
2006 11.4 0 33%
2007 20.3 0 39%
2008 25.0 0 28%
2009 19.4 0 47%
2010 36.2 6.5 45%
2011 48.9 16.6 41%
2012 42.1 0 35%
2013 42.9 0 31%

Source: S&P Capital IQ

So while the two tables above could objectively point to Challenger Technologies as having had great corporate performance, they are also things of beauty. That’s because Warren Buffett actually desires two particular characteristics that Challenger Technologies had clearly displayed when it comes to him picking businesses and shares for investment: 1) consistent and growing earnings; and 2) having good returns on equity while using little leverage. And Buffett, as some might realise, has been one of the best investors of our generation and that makes his investing methods particularly noteworthy.

Foolish Bottom Line

Challenger Technologies’ solid history of great operational results has helped it deliver a market-beating share price performance over the past 10 years; since 15 April 2004, Challenger Technologies’ shares have jumped by 416% from S$0.113 to S$0.585 even as the Straits Times Index (SGX: ^STI) has increased by only 76% from 1,844 points to 3,244 points.

It’s hard for anyone to be certain that Challenger Technologies can go on to beat the market going forward as it had done in the past. But at the very least, investors could appreciate the company for being a retailer with a beautiful record of great historical performance.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.