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After we published 4 S'pore-listcos that likely fit Warren Buffett's "ideal business" description, two readers posted what they reckoned to be companies that were also "ideal businesses" by Warren Buffett's definition. |
Here we highlight three of the companies pointed out by readers and the tables show that indeed they generate a lot of operating cashflow and spend little on capex:
| Net cash from operations (2011-2015) |
Purchase of Property, Plant, Equipment (2011-2015) |
| S$45.2 m | S$16.2m |
♦ Nordic Group: The table shows five years of data which are commendable.
Even more impressive is the performance in 2014 and 2015 during which Nordic enjoyed operating cashflow of S$26.3 million while spending only S$2.0 million in purchasing PPE (property, plant and equipment). .
This is likely to stem from MultiHeight Scaffolding (acquired in 2012) and Austin Energy (acquired in 2015).
These are service businesses focusing on petrochemical clients and require relatively low capex but generate a lot of cashflow. 
Austin Energy's workshop where insulation materials are fabricated for use on petrochemical plants. NextInsight file photo.
| Net cash from operations (2011-2015) |
Purchase of Property, Plant, Equipment (2011-2015) |
| S$17.5 m | S$2.8m |
♦ Captii: Captii's investments are primarily concentrated on technology and telecoms businesses that operate under the brands Unifiedcomms (www.unifiedcomms.com) and GlobeOSS (www.globeoss.com).
As a result of its strong cashflow, Captii had S$13.5 million in net cash as at end-2015 while its market cap is S$15.7 million base on the recent share price of 49.5 cents.
It's an illiquid stock, as you would have guessed.
Shareholders find it difficult to sell out but thrive on its 5.1% dividend yield.
| Net cash from operations (FY2012-2015) |
Purchase of Property, Plant, Equipment (FY2012-2015) |
| S$24.3 m | S$3.98m |
♦ ISOTeam: It's the only listed company with a Repairs & Redecorations (R&R) segment -- which is largely painting jobs for the facade of HDB blocks. ISOTeam mostly subcontracts the work out.
It has another major segment -- Addition & Alteration, which upgrades hawker centres and neighbourhoods.
ISOTeam makes good money on its business and needs to spend little on new equipment.
On its books, ISOTeam's gondolas and other machineries have a net carrying value of only S$2.7 million as at end of FY2015.
| Stock | Operating cashflow over capex (X) |
| 1. Straco Corp | 21.2 |
| 2. Best World | 12.3 |
| 3. Boardroom | 9.7 |
| 4. Captii | 6.3 |
| 5. ISOTeam | 6.1 |
| 6. Vicom | 5.7 |
| 7. Nordic | 2.8 |
As we have said in the previous article, we have covered only two metrics, core though they are to Buffett's idea of an ideal business.
There are several other important considerations for investors to examine, including the companies' dividend payouts, sustainability of business performance, industry dynamics going forward, etc.
Operating cashflow minus capex gives rise to free cash flow. Instead of calculating the absolute free cash flow, we calculate the ratio derived from dividing the operating cashflow by the capex, so that we can compare the 7 companies highlighted in our 2 stories.
Straco is No.1, having generated 21.2X more operating cashflow than its capex. This is an amazing aspect of its business. See the table for the rest of the 7 companies.
If you wish to highlight stocks that are just as 'good', post them in the Comments below.
