A look at my recent buys (Part 3) - 800 Super

I first came across 800 Super in 2015 when its price was only 40+ cents. A cusory glance at its balance sheet puts me off as it is in a net debt position and its debt had been increasing. The company’s share price burst into action in the second half of 2016 and reaches a high of $1.38 on 12 May 2017.

I finally took a small bite of it at $0.93 in December 2016 and sold it off at $1.26 in May 2017 for a 36% gain. The recent dip in its price to $1.1+ allows me to take a second bite at it. Together with the few recent buys of iFast, Hock Lian Seng and UMS, I decided to take a closer look at the company’s past record.

What do they do?

Listed on Catalist on 15 July 2011, 800 Super is an established environmental services provider for both the public and private sectors in Singapore. The Company's environmental services include waste management, cleaning and conservancy and horticultural services. The company is one of the four licenses public water collectors appointed by NEA. It has been the Public waste collector for Ang Mo Kio-Toa Payoh sector since July 2006, and was re-awarded the contract in 2014 for 7 years and 9 months.

In its IPO document, the company stated the following as their business strategies and future plans.

• Expand our material recovery facilities capacity and the capacity of our vehicle depots

• Enhance the efficiency of our services and capacity

• Venture into waste treatment and renewable energy businesses

• Focus on public sector projects

• Continue to focus on operational excellence

• Explore strategic investments or alliances and acquisitions

• Expand into overseas markets

Based on the past few years record, tt seems that they have been executing their plans, with the completion of the material recovering plants and vehicle depot at Tuas South. Also, they were awarded integrated public cleaning for North-West (6 years) and South-West (7 years) sectors in 2014.

Recent Development

The group had a hiccup in its growth of both top and bottom line in the latest year with poorer performance in the last 2 quarters. This coincides with the delay of its completion of its Waste-to-Energy (WTE) plant which was slated to be in operation in 2017Q2. I suspect they are ironing out some teething problems and hopefully it can come into operation by end 2017.

In October 2016, the company was awarded a15-and-a-half-year, S$133.65 million contract that the Public Utilities Board (PUB) for a sludge treatment facility. This is slated to be completed in 2018 second quarter.

In the latest financial year, the company continues to increase its dividend from 2.5 cents to 4.0 cents.

Management

The Lee brothers Lee Kok Yong (Chairman), Lee Cheng Chye (CEO) and Lee Hock Seong collectively have a 75% stake fo the company.

It is my opinion that they are networker and are people-oriented leaders with interest aligned to the shareholders.  My opinion comes from the position they held – Lee Kok Yong is a direction of Ang Mo Kio Joint Temple Association and Lee Cheng Chye is currently the treasurer for Bishan East Citizens Consultative Committee and was conferred the Public Service Medal (PBM) by the President of Singapore at the 2015 National Day Awards.

The company has also increased its dividend over the years, from 1 cent in 2012 to 4 cents  in the latest financial year.

Crunching the numbers

The company has grown its EPS by about 24% over the past 5 years. I opined that the company can at least grow by 15% in the next few years which would give its PEG of about 0.85.

Dividend has been increasing and based on the payout ratio and likely increase in cash balance, I think it can at least sustain its 4 cents and that provides an yield of about 3.3% based on current price of $1.215.

The company seems to believe in using debt to grow and it is not something that I am comfortable with. However, its ability to generate cash is improving over the past few years and net debt has gone down until the recent increase in debt to finance the buiding of the sludge treatment plant.

Conclusion

After taking a closer look at the company, I must say that I am impressed by how the company has kept to what it has set out to do in its IPO. It has grown over the past 5 years and increases its dividend. While debt is something I am not comfortable with, it seems that the company has been able to deal with it and moving forward, the chance of paring it down seems high.

Weighing the risk and reward, I decided to add on to my holding today, resulting in an average price of  $1.16. It now occupies 5.4% of my portfolio.