The Motley Fool

Where to Next For Challenger Technologies? – Part II

Welcome to the second part of the article on Challenger Technologies Limited (SGX: 573). In my previous article, I covered the sources of revenue for Challenger Technologies. Today, we will look at the cash-flow and balance sheet for the company.

As a recap: In the past five years, the IT retailer’s shares are up 283%. By comparison, the capital gain returns of the SPDR STI ETF (SGX: ES3), a proxy for the Straits Times Index (SGX: ^STI), was 79% for the same duration.

A closer look at free cash-flow 

 Where to Next For Challenger Technologies? - Part II - 1 

Source: Company Earnings Report

From the graph above, we can see that Challenger Technologies has remained free cash flow (FCF) positive for four out of the five financial years studied above (note: the financial year coincides with the calendar year). The operating cash-flow though has remained relatively flat for the duration despite the increase in revenue for this period. As such, the FCF remained mostly unchanged from 2010 to 2013.

A closer look at the balance sheet


 Where to Next For Challenger Technologies? - Part II - 2

Source: Company Earnings Report

The balance sheet of Challenger Technologies has been mostly healthy for the past five financial years. The retail outfit was debt free for three out of the past five years, and ended 2013 with a healthy $43 million on the balance sheet. It was also net cash positive (cash minus borrowings) for the entire duration.

Foolish summary

Challenger Technologies has operated its business profitably over the past five financial years. It has also built up a wide network of IT retail stores in Singapore that may give an advantage in product distribution. However, the IT retailer cannot afford to rest on its laurels. The threat of online retailers in Singapore or abroad may also pose a strong challenge to its business in the future. The onus is for Challenger Technologies to make the most of its membership programme to keep its customers coming back. As always, if the competitive advantage in the future is not as clear, cautious Foolish investors may want to wait for further developments.

As of the closing price on 10 December 2014 of $0.46, Challenger Technologies traded at a trailing earnings ratio of about 11.2, and has a dividend yield of around 5.5%.

For more (free!) stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot 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 Chin Hui Leong doesn’t own shares in any companies mentioned.