SBS Transit Ltd (SGX: S61) provides bus and rail services in our city-state. Under its rail services business, SBS Transit operates the North East Line (NEL), the Downtown Line (DTL), and the Sengkang and Punggol Light Rapid Transit (SPLRT).
Thus far in February this year, SBS Transit’s share price has climbed some 10% to end at S$3.23 on Wednesday (20 February). Is it too late to invest or is there still value in the company? To help answer that, let’s look at the key historical financial figures and valuation numbers of SBS Transit.
Revenue and profit
We will start with the income statement. This statement, also known as the profit and loss statement, shows us how much revenue the company brought in by providing services or selling goods, and how much is left after paying all the various overheads needed to run the business. What’s leftover is known as profit.
The table below shows the key figures from SBS Transit’s income statement in its last five financial years (the company has a 31 December year-end):Source: S&P Global Market Intelligence
SBS Transit’s revenue, gross profit and net profit have improved consistently each year. Net profit, in particular, has grown by an impressive 54% annually from S$14.3 million in 2014 to S$80.1 million in 2018.
Cash and debt
Although revenues and profits are critical, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a prolonged economic crisis. That is where the balance sheet comes into play. It can reveal the health of a company by providing a snapshot of its financial condition.
The table below shows the key figures from SBS Transit’s balance sheet over the last five years:Source: S&P Global Market Intelligence
SBS Transit’s balance sheet has strengthened significantly since 2014. The transition to the Bus Contracting Model (BCM) since September 2016 has certainly helped the company deleverage its balance sheet.
Many of you may have heard the saying, “Cash is king”. Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company’s coffers due to accrual accounting.
Accrual accounting requires businesses to record revenues and expenses when the transactions happen, not when the cash is exchanged. Also, the income statement usually includes non-cash revenues or expenses. To get a true picture of the flow of money in and out of a company, we have to look at the statement of cash flows.
The table below shows the key figures from SBS Transit’s statement of cash flows, for the same period as its income statement and balance sheet shown above:Source: S&P Global Market Intelligence
SBS Transit managed to generate positive free cash flows from 2016 onwards, which coincides with the move to the BCM. Free cash flow is cash that the company can use to dish out dividends to shareholders, buy back shares, make acquisitions, or strengthen its balance sheet, among other things.
With the higher free cash flow, SBS Transit’s dividend per share has surged 155% from 5.05 Singapore cents in 2016 to 12.90 Singapore cents in 2018.
On Wednesday, SBS Transit’s share price last changed hands at S$3.23. At that price, SBS Transit had a price-to-earnings (PE) ratio of 12.6 and a dividend yield of 4%. For context, the SPDR STI ETF (SGX: ES3), an exchange-traded fund which tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), had a PE ratio of 11.5 and a dividend yield of 3.5% on the same day.
The Foolish takeaway
In my opinion, SBS Transit looks fairly valued when comparing its PE ratio to that of the market. However, I wouldn’t mind paying a fair value for SBS Transit given its great historical track record of growing its earnings, free cash flow and dividends consistently. SBS Transit might also have room to increase its dividend as its dividend payout ratio was a conservative 50% in 2018.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of SBS Transit Ltd. Motley Fool Singapore contributor Sudhan P owns shares in SBS Transit Ltd.