What’s Next For This Winning Share After Growing 825% In Price In 6 Years? Part 2

Welcome to the second part of my study of Straco Corporation Ltd’s  (SGX: S85) ability to sustain its business growth. In my previous article, I covered the company’s source of revenue growth over the past five years between 2009 and 2013. In here, I’d look at Straco’s cash flow and balance sheet.

As a recap: Straco could be a company worth studying. The company’s shares are up 825% over six years from 1 Jan 2009 to 31 January 2015.

Over the same timeframe, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – was “just” 81%.

Straco is an operator of tourism assets which are located in both China and Singapore (Straco’s Singapore-based asset – the Singapore Flyer – had only been bought in late 2014 and so had not contributed to the company’s business prior to that year).

Over 90% of the visitors to Straco’s China-based tourism assets are actually Chinese locals. The company’s revenue can be separated into the Aquarium segment and the Others segment. The former includes revenue from the Shanghai Ocean Aquarium and Underwater World Xiamen. Meanwhile, the latter would cover the operations of the Lintong Lixing Cable Car and show performances.

Over its past five completed-financial years between 2009 and 2013 (the company’s financial year coincides with the calendar year), Straco has distributed a growing annual dividend totalling around 5.25 cents per share.

Financial Year Dividend per share (Singapore cents)
2009 0.50
2010 0.75
2011 0.75
2012 1.25
2013 2.00

Source: Straco Corporation’s Earnings Report

A closer look

Ideally, we would like to see Straco’s revenue dollars drip down to the bottom-line. For that, we look into the company’s operating cashflow and capital expenditures.

Straco - 2

Source: Straco Corporation’s Earnings Report (dollar figures given in thousands)

In the past five years from 2009 to 2013, Straco’s operating cash-flow has grown at an annualized rate of 23.8% per year. That’s an impressive growth rate. Furthermore, the firm’s capital expenditures have remained low throughout this period.

Taken together, Straco Corporation has thus generated increasing positive free cash flow (operating cash-flow minus capital expenditures) throughout the period.

Straco - 3

Source: Straco Corporation’s Earnings Report (dollar figures given in thousands)

The copious amounts of free cash flow generated also found its way into the company’s balance sheet. Straco has remained debt free during this period with its cash position increasing from $45 million in 2009 to $108 million in 2013. This is a healthy balance sheet.

Foolish summary

As a first pass, Straco has managed to grow its revenue and free cash-flow well in the five year period stretching from 2009 to 2013.

As mentioned earlier, Straco had acquired the Singapore Flyer late last year. The Singapore Flyer, despite its status as an iconic landmark in Singapore, has not been an easy asset to run as operational difficulties caused it to fall into receivership back in 2013.

But as my colleague Sudhan P pointed out, Straco has had prior success in improving the operations of its tourism assets. As Foolish investors, we should keep watch on how well Straco is able to monetize its new acquisition.

Straco closed last Friday at $0.74. At that price, the company’s valued at a trailing price-to-earnings ratio of about 16, and has a dividend yield of around 2.7%.

For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you 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.