Do Uninteresting Shares Present Good Value?

Do shares in uninteresting industries that will hardly ever make it to the headlines of newspapers like oil stocks in the current downturn and technology companies getting higher and higher valuations make good investments? I think that there are usually in these industries there are some that will be overlooked and offer attractive prices that will be able to sustain a good return to the investors that take time to look at them. This blog post is intended to highlight one of them.

(Image source: http://www.colex.com.sg/disposal_services.html)

Which company am I highlighting here? It is Colex, better known as one of the four public waste collection companies in Singapore and in charge of the Jurong sector of Singapore (map below). Other than its waste disposal business, it also derives around 40% of its revenue from its contract cleaning business.

(Image source: http://www.nea.gov.sg/energy-waste/waste-management/overview)

Let's look at the income statement of the company.

It shows good growth in profits and revenue for the previous 5 years (2010-2014), with its revenue growing at a compounded rate of 11% and its profits after tax growing at a compounded rate of 65.3% (both during 2010-2014), with no decline in profits or revenue during that period as well. I'm not really sure if this growth is sustainable, but with Jurong East being developed into the next city centre, their business there may increase.

Over at the balance sheet, things still look quite good. With no debt and a somewhat average current ratio of 1.72, the company does not raise any red flags.

In the cash flow statement, there is an increase in accounts payable for 2013 and 2014 and a decrease in accounts receivables for 2013, which is good as this increases the company's cash, which makes it less likely to need to draw loans for periods when it is out of cash. This in turn reduces its borrowing costs.

However, we also have to note that the company may lose its tender for municipal waste collection in the Jurong sector when its 7-year term ends in 2020 (but just to note, it is currently in its second 7-year term, the first started in 2006). The new progressive wage model that licensed cleaning businesses have to abide by September 2015 may also eat into the company's profits.

But, if we look at the price of the share, the stock appears to be quite cheap as it has a P/E ratio of 10, but this is a low-volume share, which may make buying it a little difficult or more expensive. For a share that has a good growth record for the past 5 years and a sustainable business model, this seems quite good. But for dividend investors, it has a low dividend yield, paying just 0.5 cents on a 32 cents share (1.56%)

Does this uninteresting share offer a good value for its fundamentals? I would think so, just that investors may need to be cautious of the risk factors (progressive wage model as well as a possible loss of tender), as well as the more risky nature of small-cap shares and low volume traded.

If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email