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What Does the Future Hold for This Winning Stock? – Part 2

Welcome to the second part of the article on VICOM Limited (SGX: V01). In my previous article, I covered the sources of revenue for VICOM. Today, we look at the cashflow and balance sheet for the company.

As a recap: The company’s shares are up 324% in the past five years. By comparison, the capital gain returns of the SPDR STI ETF (SGX: ES3), a proxy for the market barometer, Straits Times Index (SGX: ^STI), was 75% for the same duration. The company also distributed dividends worth 95 cents per share over the same period.

A Closer Look

Vicom - 2

Source: Company Earnings Report

The financial year for VICOM coincides with the calendar year. For the five years studied, the operating cash-flow and lower level of capital expenditure provided free cash flow that was decidedly positive. The historical record of VICOM’s capital expenditure suggests that the nature of its business does not require new injection of capital every year — unlike say, an airline operator like Singapore Airlines Ltd. (SGX: C6L) or Tiger Airways Holdings Limited (SGX: J7X). As a previous owner of a motorcycle, I can report that the test and inspection procedures at VICOM does not change much on a year to year basis. Therefore, my own observation is that capital invested in testing equipment are likely to be used for many years to come. Well that, and the fact that VICOM is still using old school dot-matrix printers for its certificates. Let’s move on to the balance sheet next.

Vicom - 3

Source: Company Earnings Report

Again, the cash and equivalents point to a picture of health, increasing for the past five years alongside its positive free cash-flow. The company ended the FY2013 with 78.5 million in cash and equivalents.

Foolish Summary

As mentioned in my previous article, we should look for further growth from its non-vehicle test business segment. Despite the keen competition, management still expects this segment to grow. We may also see growth in its vehicle testing as well, however, management has cautioned that more vehicles will be deregistered in the years to come – leading to lower vehicles passing through its testing lanes. If the VICOM is able to keep doing what it has been doing (and pile on the cash), it could lead to steady returns for patient investors for the long term.

As of the closing price on 18 December 2014 of $6.20, VICOM traded at a trailing earnings ratio of about 18.5, and has a dividend yield of around 3.8%.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.