Some investors believe that a business’s cash flow is the most critical aspect of a company’s financials instead of revenue or profit, as cash is needed for any business to survive. Free cash flow (FCF) can be defined as the cash left over after the business spends on capital expenditure. FCF allows the business to reinvest the cash to grow the business in the future.
Although cash sitting on the balance sheet generates low returns compared to when the cash is invested in the business, having extra cash is preferable to having high levels of debt. Here are 3 Singapore-listed companies that generate strong FCF.
#1 Singapore Exchange Limited
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s only stock exchange operator. The group runs a platform for the buying and selling of securities such as equities, fixed income, derivatives, and foreign exchange. SGX also provides listing, clearance, and settlement services for listed companies.
For the past 5 years, SGX has very consistent FCF generation, with an average of nearly SGD 350m per year. This allows the company to pay steady dividends and to grow its business. It has a dividend yield of 3.4%.
#2 Straco Corporation Limited
Straco Corporation Limited (SGX: S85) operates tourism assets in Singapore and China. The company owns 90% of the Singapore Flyer and two aquariums in China. It also owns the rights to develop the Chao Yuan Ge heritage site in Xi’an.
In the past 5 years, the company has an average FCF of over SGD 50m per year, with a dip in 2018 as the Singapore Flyer was undergoing repairs and maintenance.
#3 VICOM Limited
VICOM Limited (SGX: V01) is a leading testing and inspection company. The group has over 75% market share of the vehicular testing market in Singapore. In addition, VICOM also conducts testing and inspection services for mechanical and biochemical applications.
VICOM has consistently generated about SGD 30m of FCF per year apart from 2018, when it acquired a new property for its headquarters. For the first half of this year, its FCF is close to SGD 14m.