As a contrarian investor, I like to look for companies that are disliked by the market for my idea-generation work. Such companies might be trading at attractive valuations that provide a good margin of safety.
Recently, I found Genting Singapore Ltd (SGX: G13) to be one such company. For starters, Genting Singapore is the operator of integrated resort Resorts World Sentosa. Among the resort’s many attractions are one of Singapore’s two casinos and the Universal Studios Singapore theme park.
Here are two reasons Genting Singapore looks like a safe investment to me.
1. A solid financial position
There are cycles in the business environment. So, for a company to survive over a long period of time, it must be able to withstand some ups and downs.
To do so, it must have a strong balance sheet so it can 1) satisfy its existing operational and financial requirements and 2) invest in future growth.
The market has concerns about the challenges Genting Singapore might face in the short term (due to factors like slower economic growth, trade wars, etc.), so is has been discounting its share price lately.
Nevertheless, Genting Singapore has a solid balance sheet that will allow it to withstand such challenges and even emerge stronger over the long run. In fact, as of 30 June 2019, Genting Singapore has S$3.6 billion in cash while its borrowing stood at S$269.1 million, giving it net cash of roughly S$3.4 billion.
With a pristine balance sheet, Genting Singapore will likely be able to withstand most short-term challenges. Also, it might use its strong balance sheet to grow during bad times (since that’s when good opportunities arise).
2. A good dividend track record
Another reason Genting Singapore seems like a relatively safe investment is its dividend track record.
Genting Singapore has been paying a dividend since 2012, and from 2012 to 2018, the company has raised its dividend per share from S$0.01 to 3.5 Singapore cents. Based on earnings per share of 6.27 Singapore cents in 2018, this translates to a payout ratio of 56%.
Though there’s no guarantee the company will sustain its dividend going forward (especially during challenging times), there’s a good chance it will. After all, its strong balance sheet position and low payout ratio position it well to do so.
The bottom line
Genting Singapore might not be an exciting company to talk about among your peers now, especially after this recent weak share-price performance.
However, if investors are willing to take a longer-term view, the company looks like a safe bet thanks to its strong balance sheet and dividend track record.
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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 mention.