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Keppel Corporation Limited Has Had A Rough Time, But Here’s 1 Bright Spot About Its Business

To say that Keppel Corporation Limited (SGX: BN4) has had a tough two-year streak would be an understatement.

The oil rig builder and property developer has seen its share price shrink by almost 40% since the start of 2015. In that year, lower oil prices had led to sharply lower sales and profits at the conglomerate. Then at the start of 2016, Keppel Corporation had to deal with the bankruptcy of one of its major customers, Sete Brasil.

The third-quarter of 2016 did not provide any relief either. Keppel Corporation’s revenue was slashed by 40% while its profit was down by over 38%.

As investors, we should try our best to look at both sides of the coin. As we look through the wreckage, there could be bright spots. Here’s one for Keppel Corporation.

Hello, free cash flow

Over the past three years, Keppel Corporation has generated negative free cash flow. The chart below shows the firm’s free cash flow per share from 2005 to 2015.

Chart 2 - Keppel Corp's free cash flow per share since 2005 Source: S&P Global Market Intelligence

But in the third-quarter of 2016, Keppel Corporation actually registered positive free cash flow of S$560 million.

This has led to Keppel Corporation’s net debt to decline from S$7.33 billion at the end of the second-quarter of 2016 to S$6.77 billion. The company’s net gearing ratio (net debt divided by equity) declined from 0.62 to 0.57 over the same timeframe as a result.

To be sure, Keppel Corporation still has a lot of hurdles in front of it. But having free cash flow gives it options. We will have to check in again to see whether the company can continue generating positive free cash flow in the coming quarters.

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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.