Hour Glass Ltd Versus Cortina Holdings Limited: Which Is a Better Buy Now?

There are around 700 companies listed on the stock exchange in Singapore. Out of those, there are a number of companies that have similar business operations. It is sometimes hard to determine which company in a particular industry is better than its peers.

In this article, we will do some quick-and-dirty comparisons between two retailers of luxury watches, Hour Glass Ltd (SGX: AGS) and Cortina Holdings Limited (SGX: C41), to determine which might be a better buy.

Introducing the Contenders

Hour Glass opened its first boutique in 1979 in Singapore. On top of having presence in our country, it has grown to establish itself in countries such as Malaysia, Australia, Thailand, Japan and Hong Kong.

On the other hand, Cortina was started in 1972 and has presence in Singapore, Malaysia, Thailand, Indonesia, Hong Kong, and Taiwan.

The table below shows the market capitalisation and revenue for the two firms.

Do note that all figures quoted in the tables that follow are for the full year ended 31 March 2017 (FY2017), unless otherwise stated. Market capitalisation is as of the closing prices on 4 September 2017.

  Hour Glass Ltd  Cortina Holdings Limited
Market Capitalisation S$440.6 million S$129.2 million
Revenue S$696.1 million S$390.8 million

  Round 1: Profitability

In the maiden round, we will analyse the profitability of the companies in terms of profit margins and Return on Equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.

  Hour Glass Ltd  Cortina Holdings Limited
Gross Margin 22.7% 22.9%
Net Margin 7.0% 3.0%
ROE 10.2% 7.4%

For every dollar of revenue created by Hour Glass, seven cents were generated as profits but for Cortina, every dollar of revenue only gave three cents in profits. This shows that Hour Glass is better at keeping costs low. Furthermore, Hour Glass has a higher ROE than Cortina.

Winner: Hour Glass, as all the figures are much better Cortina’s.

Round 2: Growth

In the second round, we will compare the compounded annual growth rate (CAGR) of revenue, earnings per share (EPS) and dividend of the two firms from FY2012 to FY2017. Firms that can grow their sales and profits steadily over time should also see their share price rise in the long-term.

  Hour Glass Ltd  Cortina Holdings Limited
Revenue CAGR 2.8% 2.8%
EPS CAGR -21.6% -11.1%
Dividend CAGR 0% -3.0%

Both firms have been facing headwinds in the sector they are operating in. However, Hour Glass has been hampered more than Cortina as seen from the bigger decline in EPS.

Dividend growth at Hour Glass was flat but dividends came down at Cortina during the period of comparison.

Winner: No clear winner, but it seems like Hour Glass has been affected more by the sectorial slowdown.

Round 3: Valuation

As Foolish investors, it is important to focus on the value of the business and not on the daily changes in the stock price.

We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies. Do note that the values below are as of the closing prices on 4 September 2017.

  Hour Glass Ltd  Cortina Holdings Limited
PE Ratio 9.0 10.9
PS Ratio 0.6 0.3
Dividend Yield 3.2% 6.4%
Share Price S$0.625 S$0.780

Here, Cortina seems to be more undervalued with a lower PS ratio and a higher dividend yield. Its PE ratio, though, is higher than Hour Glass’.

Winner: Cortina, even though its absolute price is higher than that of Hour Glass’.

Foolish Bottom Line

Final Score: 1-1

It’s a tie with Hour Glass winning in Round 1 and Cortina triumphing in Round 3. There was no absolute winner in Round 2.

To come to a clear conclusion on which company is superior, we have to look at other important aspects such as the balance sheet strength, free cash flow situation, management’s integrity, and so on. However, this simple exercise would help to take some heavy-lifting off an investor’s back.

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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 Sudhan P owns shares in Hour Glass Ltd.