3 Shares That Won’t Fear Rising Interest Rates

It’s getting increasingly expensive for local companies to borrow money.

A good sign of the times is seen in how the three-month Singapore Swap Offer Rate (SOR) – a benchmark for commercial loans – has increased: From a base of 0.2% in late February last year, the SOR has since spiked to some 1.07% as of Thursday.

For heavily-leveraged companies in Singapore, this won’t be welcome news at all as rising interest rates would bring with it the spectre of financial distress and lower profits.

But, the same can’t be said for the trio of Sarine Technologies Ltd (SGX: U77), Riverstone Holdings Limited (SGX: AP4), and Super Group Ltd (SGX: S10).

Over the past five years from 2010 to 2014, the three shares have carried either zero or minimal borrowings on their balance sheets, signifying their ability to operate without debt. You can see this in the chart below:

Balance sheet figures for Sarine, Riverstone, and Super from 2010 to 2014

Source: S&P Capital IQ

In addition, the three companies have not just survived, they’ve also thrived. This can be seen in their high returns on equity from 2010 to 2014 (their returns on equity have not gone lower than 14% in that time) as well as their profit growth over the same period:

Return on equity for Sarine, Riverstone, and Super from 2010 to 2014

Earnings growth for Sarine, Riverstone, and Super from 2010 to 2014

Source: S&P Capital IQ

Such a track record would suggest that the three companies might not need to sweat over rising interest rates as their businesses have displayed an ability to generate high returns on shareholder’s capital and produce the resources needed to grow without the need to take on debt.

A Fool’s take

It may pay for us to look for companies that can deliver the kinds of business performance that Sarine Technologies, Riverstone Holdings, and Super Group have had – the strong corporate results of the trio have translated into growing share prices.

Since the start of 2010, the three shares have gained 934%, 129%, and 373% in price respectively. In comparison, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund which tracks the fundamentals of Singapore’s market barometer the Straits Times Index (SGX: ^STI) – has stepped up by just 14%.

None of the above is meant to say that Sarine Technologies, Riverstone Holdings, and Super Group would make for great investments going forward – we should never invest by looking solely at the rearview mirror. But that said, the trio should still be at least worth a deeper look by investors given their track records thus far.

In any case, with interest rates in Singapore having surged over the past year, it’s important for us to keep a watch over the balance sheets of the companies we own shares of, lest they run into financial troubles if interest rates here continue climbing.

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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 writer Chong Ser Jing owns shares in Sarine Technologies and Super Group.