Small-cap shares often go under the radar. Luxury watch retailer, Cortina Holdings Limited (SGX: C41) is perhaps one such stock. Established in 1972, Cortina has 28 luxury watch outlets in Singapore, Malaysia, Thailand, Hong Kong, and Taiwan. Despite growing both revenue and profits from 2016 to 2018, the group’s shares still trade slightly below its book value.
With that in mind, I decided to take a closer look at its most recent results.
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Strong operating performance
In the 12 months ended 31 March 2019, Cortina recorded a 31% improvement in net profit attributable to shareholders in spite of a 1% decrease in revenue. The faster growth in profit was largely driven by higher gross margins and cost controls, which resulted in lower expenses.
Management said that the lower revenue was due to the closure of certain retail outlets in Singapore, Malaysia, and Thailand.
In its financial report, management also highlighted that “global economy remains uncertain and will continue to pose challenges to the Group’s future performance. On the other hand, the purchasing power of regional consumers continues to rise.”
Robust balance sheet
Cash is king and Cortina has plenty of it. As of 31 March, the watch retailer held S$81.3 million in cash and had $24 million in debt and borrowings. This translates to a very strong net cash position of S$57.3 million.
On top of that, Cortina’s business generates a stable amount of cash flow each year. In the reporting period, Cortina generated S$83.1 million in cash from operations and had a net spend of just S$6.9 million in capital expenditures.
This enabled the company to pay off $20 million of its debt from last year. The company’s strong cash flow and cash position should provide it with the financial power to reward shareholders with dividends or to expand its operations should the opportunity arise.
Cortina has decided to reward shareholders with a final dividend of 2.0 Singapore cents and a special dividend of 3.5 Singapore cents. This brings its total dividend for the year up to 5.5 Singapore cents
Based on Cortina Holdings’ current share price of S$1.19, this year’s dividend translates to a respectable 4.6% yield.
Considering its earnings per share of 17.7 Singapore cents, the dividend proposed represents a dividend payout ratio of just 31%. The low dividend payout ratio gives the company plenty of room to increase its dividend in the future.
The Foolish bottom line
Cortina delivered another excellent set of results for the 12 months ended 31 March. The luxury watch retailer also has a robust balance sheet and a steady track record of generating cash from operations. These allow it to continue rewarding shareholders with dividends.
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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 Jeremy Chia does not own shares in any of the companies mentioned.