Singapore Exchange Limited (SGX: S68) is the only stock exchange operator in Singapore.
Over the last five years, Singapore Exchange’s stock price has moved from S$7.57 to… S$7.52. That’s right, the company’s stock price has been flat. But, despite the stagnant stock price, I think Singapore Exchange could be a safe long term investment.
Here are three reasons why.
Stable historical business performance
One important criterion that investors should focus on when assessing a company is how well its underlying business has performed historically. A good track record will provide reasonable assurance that the company has a better-than-even chance of sustaining its business performance in the years ahead.
In the case of Singapore Exchange, it has a solid track record. From FY2013 (fiscal year ended 30 June 2013) to FY2017, the company’s revenue has grown by 12% from S$715.1 million to S$800.8 million with minimal fluctuation. Meanwhile, it was profitable in each year, with its profit attributable to shareholders falling into a tight range of between S$320.4 million and S$349.0 million.
Yes, the company did not grow much in the five-year period I looked at. But, it has demonstrated stability in its business results.
Strong balance sheet
To be a safe investment, a company needs to have a strong balance sheet so that it can withstand the ups and downs in the business environment. Having a strong balance sheet allows a company to meet its operational needs and financial obligations, such as paying suppliers, serving its debt, paying dividends, and more.
Generally speaking, a company with a strong balance sheet will have plenty of cash and a reasonable net debt to equity ratio of not more than 100% (the net debt number refers to a company’s total debt less cash).
In the case of Singapore Exchange, it’s clear that it has a rock solid balance sheet given that it had S$800 million in cash and zero debt, as of 31 March 2018.
A history of paying stable dividends
Singapore Exchange has performed well in terms of paying a dividend – over its last five fiscal years, it has maintained its dividend at S$0.28 per share in each year. Moreover, its dividend in FY2017 was just 89% of its earnings in the same year, indicating that the company was not over-stretching itself to reward shareholders.
A Foolish conclusion
As we’ve seen, Singapore Exchange has a history of producing stable revenues, profits, and dividends. Moreover, it has a pristine balance sheet with no debt. These traits make me think that the company could be a safe investment for long term investors.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has a recommendation for Singapore Exchange.