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How SATS Ltd Shares Have Soared 2X Higher Than The Market’s Returns

Singapore’s Straits Times Index (SGX: ^STI) plays host to 30 of the largest companies in the Lion City. But one company has beaten the market’s returns by over two times in the last three years.

Airline caterer SATS Ltd (SGX: S58) delivered total returns of 30% over the period, a performance that is two times better than the STI, which posted 14% in total returns over the same period. Let’s take a closer look at the company’s performance over the past three years.

A Closer Look

SATS is a leading provider in gateway services and food solutions.

The airline caterer has increased its revenue from S$1.69 billion in the financial year ended 31 March 2016 (FY15/16) to S$1.72 billion in FY17/18. Despite the meagre revenue growth, net income increased by a compound annual growth rate (CAGR) of around 9% rising from S$220.6 million to S$261.5 million over the same period. The increase in net income led to its EPS increasing from S$0.20 to $0.23.

Next, let’s look at the performance of the company’s cash-flow. The table below gives a quick summary.

Source: S&P Global Market Intelligence; all figures in S$ millions except for free cash flow per share (S$)

From the table above, we can see that SATS generated stable free cash flow per share for FY15/16 and FY16/17, followed by a drop in FY17/18. The decline was due to changes in working capital which dragged its operational cash flow lower, coupled with an increase in capital expenditure. Overall, it doesn’t look like these items should be recurring and we should expect a bounce back in free cash flow in the future.

Show Me The Money

Next, we will look at SATS’s dividends per share and payout ratio to see if its dividend sustainable.

Source: SAT’s FY17/18 full year results presentation

The graph above shows that SATS has grown its dividend per share from S$0.13 in FY13/14 to S$0.18 in FY17/18, representing an average increase of 8.5% per year. Despite the increase in dividends, the company’s payout ratio hasn’t changed much moving from around 71% in FY15/16 to about 73% in FY17/18. The stable payout ratio suggests that SATS is not overstretching itself when it comes to paying out dividends, which should allow the company to sustain its dividend into the future.

To close, we take a quick look at the company’s cash position. Between FY15/16 and FY17/18, SATS’s net cash position has reduced slightly from S$379.1 million to S$266.9 million. Despite the decline, SATS maintains a strong net cash position which should allow the company to invest and grow its business.

In conclusion, we can see that SAT’s income, cash-flow and balance sheets are on solid footing. As such, it should not come as too much of a surprise to see the company outpacing the market by two times.

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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay owns shares of SATS. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore has recommended shares of SATS. Motley Fool Singapore writer Chin Hui Leong owns shares in SATS.