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The Best-Performing Blue Chip in the Past Decade

Stock market operator and regulator Singapore Exchange Limited  (SGX: S68) has come out tops as the best performing blue chip within the Straits Times Index  (SGX: ^STI) for the decade from end 2004 to end 2014.

On 31 December 2004, the company was going at S$1.79 apiece. Around 10 years later, on 26 December 2014, Singapore Exchange’s trading at S$7.83. This translates to a gain of 337%, excluding dividends. If dividends were included, the stock would have been a six-bagger.

Singapore Exchange’s share price gains did not come about in a vacuum – it’s business has performed well and it’s not hard to fathom why that’s so.

Being the only stock market operator in Singapore, Singapore Exchange is in a monopolistic position. Whenever someone wants to buy a stock, he/she has to go through the company and there are no two-ways about it. Warren Buffett, one of the richest investors in the world, loves such companies and he fondly calls monopolistic firms “wide moat” companies.

The huge competitive advantage that Singapore Exchange enjoys has shown up in its financials too.

From FY2005 (financial year ended 30 June 2005) to FY2014, the firm’s revenue has more than doubled from S$275 million to S$687 million. During the same period, net profit trebled from S$104 million to S$320 million. Since Singapore Exchange has extremely low capital expenditure needs, it’s able to generate lots of free cash flow as well; it brought in an average of S$293 million in free cash flow over that period.

Singapore Exchange’s balance sheet is also fortress-like with the firm being debt-free since at least FY2005.  Here’s how Singapore Exchange’s balance sheet has stacked up over the years.

  Cash & equivalents (S$ million) Total borrowings (S$ million)
FY2005 120 0
FY2006 400 0
FY2007 753 0
FY2008 822 0
FY2009 645 0
FY2010 685 0
FY2011 693 0
FY2012 698 0
FY2013 763 0
FY2014 757 0

Source: S&P Capital IQ

Singapore Exchange’s sustainable cash flow has allowed it to pay an average of 26 Singapore cents per share as annual dividends for the past decade. Currently, the company is valued at 27 times its historical earnings and has a dividend yield of 3.6%.

Come 19 January 2015, Singapore Exchange will allow retail investors like you and me to buy and sell shares at 100 shares per lot instead of the current size of 1,000 shares per lot. Shares with very high share prices, like DBS Group Holdings Ltd (SGX: D05) and Jardine Matheson Holdings Limited (SGX: J36) (the former’s going for S$20.59 now while the latter’s selling at US$60.40), will become more affordable when the change comes. This may cause increased activity in the local share market from retail investors, boosting revenues for Singapore Exchange in the process.

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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 Sudhan P doesn’t own shares in any companies mentioned.