The search is always on for great companies that generate healthy profits and copious amounts of free cash flow. Strong free cash flow (FCF) usually indicates a great company, as it allows it to use the (excess) cash for deployment into suitable acquisitions and also provides the company with a buffer during tough times. Such companies are also more likely to maintain or even increase their dividends over time and possibly morph into dividend champions.
Here are five companies that have generated FCF in their latest fiscal year ended 31 March 2019. Note that investors also need to assess the five-year FCF history of each of these companies to determine their consistency and stability, and also compare this against the dividends the company pays. Declining FCF generation and dividends may signal a business with a deteriorating moat or declining demand.
Boustead Singapore Limited
Boustead Singapore Limited (SGX: F9D) is an engineering conglomerate and one of the oldest companies in Singapore, being incorporated in 1828. It has four main divisions: energy-related engineering, real estate solutions, geospatial technology, and healthcare technology.
In its most recent fiscal year (FY 2019), Boustead generated S$12.6 million worth of FCF, and this is excluding additions to investment properties (which its real estate division has contracted to build) and the acquisition of a subsidiary (WhiteRock Medical). As a comparison, FY 2018 saw FCF generation of S$39 million. The drop in FCF was due to more cash being tied up for working capital as a result of Boustead’s record order book.
Valuetronics Holdings Limited
Valuetronics Holdings Limited (SGX: BN2) is an electronic manufacturing service provider that focuses on the design and development of electronic components for its customers. For the latest fiscal year, Valuetronics generated HK$357 million worth of FCF. In its previous fiscal year, the group generated negative FCF of HK$18.9 million, mostly because of higher levels of inventory and slower collection of trade receivables.
Japan Foods Holding Ltd
Japan Foods Holding Ltd (SGX: 5OI) is a leading Japanese restaurant chain in Singapore. The group operates 55 restaurants in Singapore under various brand names such as Menya Musashi, Ajisen Ramen, and Osaka Ohsho.
For the 2019 fiscal year, Japan Foods generated S$4.1 million of FCF. In the preceding year, the group also generated FCF to the tune of S$5.4 million.
SATS Ltd (SGX: S58) is a leading provider of gateway services and food solutions for airlines. SATS is present in over 60 locations and 13 countries across Asia and the Middle East. For its latest fiscal year, the group reported FCF of S$208 million, which was an increase over the previous year’s FCF of S$146 million. However, moving forward, SATS may increase its capital intensity as it intends to spend S$1 billion over the next three years. Therefore, investors need to keep a close watch on the company’s FCF level.
Singapore Telecommunications Limited
Singapore Telecommunications Limited (SGX: Z74), or SingTel, is a telecommunication company that offers a comprehensive suite of services including mobile services, pay TV, and internet services. SingTel is one of Singapore’s largest listed companies and serves over 700 million mobile customers around the world.
For its latest fiscal year, SingTel generated S$3.65 billion worth of FCF, which was comparable to the previous fiscal year’s S$3.60 billion.
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 Boustead Singapore Limited and SATS Ltd. Motley Fool Singapore contributor Royston Yang owns shares in Boustead Singapore Limited and SATS Ltd.