3 Wise Views on Venture Corporation Ltd

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing.

For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent and Foolish perspectives.

To demonstrate, let’s use Venture Corporation Ltd (SGX: V03) as an example. Venture serves a variety of industries, namely printing & imaging, networking & communications, retail store solutions & industrial, computer peripherals & data storage, test & measurement, medical & life sciences, and others. The firm’s business activity resides primarily in the Asia Pacific region.

You can read more about the company in here and here.

With Venture, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view

As a bargain hunter, the value investor would like to see valuations that are lower than the market average. So, let’s check the numbers out.

At its closing price of $7.73 yesterday, Venture sported a trailing price to earnings (PE) ratio of around 15. Meanwhile, the SPDR STI ETF  (SGX: ES3) has a trailing PE ratio of 13.2. If we take the SPDR STI ETF as a proxy for Singapore’s market barometer, the Straits Times Index  (SGX: ^STI) – which is the case, since the former closely mimics the fundamentals of the latter – we can then say that stocks in Singapore are also selling for 13.2 times their trailing earnings on average.

It thus follows that Venture’s PE ratio is slightly higher than where the value investor would like it to be.

That said, Venture does have traits which may excite the value investor. As of 31 March 2015, the company has a really strong balance sheet with a net cash position (cash and equivalents minus borrowings) of around S$265 million. On top of that, Venture has also displayed a fine track record of generating free cash flow (more on this soon).

So, Venture may still perk the interest of the value investor – if he or she can get pass the company’s higher valuation.

The income investor’s view

The 6.5% trailing dividend yield offered by Venture’s shares may be the first thing that catches the income investor’s eyes; that’s higher than the SDPR STI ETF’s yield of about 2.8%.

The next thing about Venture which may also catch the eye of the income investor would be its history in paying a dividend. While there was a minor reduction in the pay-out, the company’s annual dividend can still be considered to have been relatively steady over the past five years.

Financial year ended 31 December Venture’s dividends per share
2010 S$0.55
2011 S$0.55
2012 S$0.50
2013 S$0.50
2014 S$0.50

Source: Morningstar

In the same timeframe given in the table above, the electronic solutions provider has also generated steady free cash flow (operating cash flow minus capital expenditures). This is shown in the graph below.

FCF Dividends Venture

Source: Venture’s earnings report

But while having the ability to generate free cash flow is a good thing, the income investor might still have concerns on the sustainability of Venture’s dividends; as you can see, Venture’s free cash flow has come in lower than its dividends for the most part over the past five years. Due to the company’s strong balance sheet, shrinking dividends from Venture is not an immediate worry. But, the income investor may prefer to see dividends being funded out of the company’s free cash flow.

In all, Venture’s steady dividends and free cash flow may be enough to interest the income investor to investigate further. But he or she may want to demand a higher margin of safety to cater for the potential risk of dividend reductions.

The growth investor’s view

The growth investor may be puzzled with the growth prospects of Venture.

Product Segment Venture Corp

Source: Venture’s earnings report

From the graph above, we can see that the company’s printing and imaging segments as well as its networking and communication segments have seen their revenues shrink significantly over the past five years. While there are other business segments picking up the slack, the growth investor will note that Venture has not grown its overall top-line over the period examined above.

On the other hand, the company’s operating cash flow has been moving directionally upwards despite the patchy five-year revenue performance.

OCF FCF Venture

Source: Venture’s earnings report

Would this be enough for the growth investor? Venture’s entrance into new areas like genomics and 3D printing hold some promise, but the growth investor may want to see these new businesses translate into sustainable, profitable growth before considering the stock.

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us.

Collectively, the differing views may be worth much more than the sum of its parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

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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.