A Deeper Look at a Steady Dividend-Paying Company – Part 2

Welcome to the second part of my study of Kingsmen Creatives Ltd (SGX: 5MZ).

In my first article, I covered the company’s source of revenue and sales growth over the past five years between 2010 and 2014. In this article, I’d like to look at Kingmen Creatives’ profits, cash flow, and balance sheet.

As a quick recap: Kingsmen Creatives is a corporate marketing services provider. Its business is organized into four major divisions: Exhibitions and Museums; Retail and Corporate Interiors; Research and Design; and Alternative Marketing.

The company’s shares are up by 74% from 1 Jan 2010 to its closing price last Friday. Over the same timeframe, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for the market barometer, the Straits Times Index (SGX: ^STI) – was just 13%.

From 2010 to 2014 (the company’s financial year coincides with the calendar year), Kingsmen Creatives has distributed a steady annual dividend totaling S$0.20 per share.

Financial year Dividend per share (Singapore cents)
2010 4.0
2011 4.0
2012 4.0
2013 4.0
2014 4.0

Source: Kingsmen’s financial reports

A closer look

Beyond revenue growth, we would like to see the company’s revenue dollars drip down to the bottom-line. For that, we look into the division profits of Kingsmen Creatives as well as the firm’s operating cashflow and capital expenditures.

image (1)

Source: Kingsmen’s financial reports

Over its past five financial years from 2010 to 2014, the corporate marketing provider’s profit grew at an annual rate of 2.8%. This is slower than the rate of the firm’s revenue growth.

Majority of Kingsmen Creatives’ profit growth came from the Retail and Corporate Interiors and Research and Design divisions. For 2014, the Retail and Corporate Interiors division made up a whopping 65% of the company’s total profit while the Research and Design division provided the best profit margins among the four divisions.

Let’s look at the firm’s operating cash flow and capital expenditures next.

image (2)

Source: Kingsmen’s financial reports

Kingsmen Creatives’ profitability picture looks better with the cash flow statement. Over its past five financial years, Kingsmen Creatives has kept its capital expenditures way below its operating cash flow, thus leading to increasing levels of free cash flow (operating cash-flow minus capital expenditure) throughout the period.

From 2010 to 2014, the corporate marketing provider’s free cash flow grew at an annualized rate of 12.2% per year – that’s faster than its revenue growth.

We now move onto the firm’s balance sheet.

image (3)

Source: Kingsmen’s financial reports

The copious amounts of free cash flow generated has helped Kingsmen Creatives to strengthen its balance sheet. From 2010 to 2014, the level of cash and equivalents has increased from $28 million to $81 million while borrowings have remained minimal.

This looks like a healthy balance sheet to me.

Foolish summary

As a first pass, Kingsmen Creatives has demonstrated steady growth in revenue and free cash-flow during its last five financial years.

As my Foolish colleague Ser Jing notes, 70% of Kingmen Creatives’ clients return for its services, indicating a good reputation that the company has built over the years.

Furthermore, Kingsmen Creatives may have also benefited from the growth in Asia’s general retail environment and the the Meetings, Incentive Travel, Conventions and Exhibitions (MICE) industry. For instance, in the six years prior to the end of 2013, the MICE market in Asia had grown by 133%.

At a market cap of around $190 million and a net cash position of $75 million, a good part of Kingsmen Creatives’ valuation seems to be well supported.

As of Kingsmen Creatives’ closing price of S$0.99 last Friday, the firm traded at a trailing price-to-earnings ratio of about 11, and has a trailing-12-months dividend yield of 4%.

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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.