FCF positive! $1 billion cash pile! Higher dividends?

I like to ask myself this question whenever one of my investments is suffering a paper loss.

“If I was not already invested in this at a higher price, would I buy at the price now?”

If the answer is “yes”, then, I could possibly add to my position in the investment.

If the answer is “no”, then, I could either hold or sell.

To hold, there must be some redeeming qualities like a strong balance sheet, the ability and the will to pay dividends consistently.

To sell, it could mean that I think the business has weak numbers, would lose money, stop paying me and maybe even struggle to stay afloat.

To be sure, I could also sell some if I must raise cash for another investment which I think could be more rewarding.

For some time now, ComfortDelGro has been getting “BUY” calls from many experts, citing the cheap valuations.

Although ComfortDelgro isn’t what it used to be, no thanks to senselessly destructive competition brought on by money burning GRAB, it is trading at a level which is really inexpensive now.

In a recent video, I said that ComfortDelGro was not a basket case and that it still has a place in a diversified portfolio of investments for income.

I elaborated on this in a blog which shared the transcript through my reply to a viewer’s question.

Please find link to the blog below.

For people who are more concerned about the future of the business, there are many analyses available but all of them have this one thing in common.

All of them say that ComfortDelGro will see numbers continue to improve.

Here, I will share some points in an analysis by RHB research.

Expect earnings to improve in second half of 2023 “amidst reductions in taxi rental rebates and benefits from the annual indexation of overseas bus contracts.”

“Public transport earnings seem to have bottomed, and improvement should be seen in overseas operations during second half of 2023 amidst indexation of higher operating costs in the UK.

“Singapore should continue to see improvement in ridership in rail.

“Reduction in Singapore taxi rental rebate from 15% to 10% and the scope to increase commission rates for taxi bookings.

ComfortDelGro charges only 5% versus 20% charged by GRAB.

I keep saying that ComfortDelGro is still a profitable business unlike money burning GRAB.

In Q1 2023, ComfortDelGro generated free cash flow of almost $90 million.

This brings its cash balance to more than $1 billion.

It is in a net cash position of $715 million.

“Even with our estimate of its CAPEX reaching pre-pandemic levels by 2025, we expect it to continue building on its current strong net cash position.”

This supports what I said in my recent video on ComfortDelGro.

That to invest in ComfortDelGro is to invest in a business that is generating a lot of cash while keeping a very strong balance sheet.

It has also shown its ability and will to pay dividends through good and bad times.

RHB research estimates a normalized dividend yield of 4.5% to 5.5% based on a 65% payout ratio.

During “Evening with AK and friends 2023”, I mentioned that I sold half of my investment in 

$1.15 a share was a fairly good price.

There is much market pessimism surrounding ComfortDelGro now and according to RHB research, it is trading at minus 1 deviation compared to its historical average which reflects this.

A mean reversion could eventually happen.

ComfortDelGro has shown its willingness to reward shareholders whenever it felt it had more funds than it needed to hold.

With a growing cash pile, we could expect higher dividends too.

Having said this, I remind myself that investing in ComfortDelGro is not to invest for growth.

If we are looking for growth, we should look elsewhere.

If AK can talk to himself, so can you!