03 February 2014

Challenger Technologies - I.T. Giant In Making

One of my friends who is working in the company recommended me to take a look on this company. So it is time for me to do some homework on this company and share it with you guys here.

Challenger Technologies Key Summary. Source: Company's Annual Report 
Challenger Technologies Key Financial Ratios. Source: Company's Annual Report

ROE was quite stable at the range 30% to 40% with 5 years record here, and the Quick Ratio which indicates Cash over Current Liabilities was in a healthy figure. ROE was largely attributed by high asset turnover as the company was able to generate huge revenue based on low assets. 

One thing I like the company is that, the company was able to maintain the net profit margin of 5% over so many years although we knew that I.T. hardware market is actually in a very high competition now. Their main business strategy is to setup their IT stall at the convenient of their customers. 

Challenger Technologies is also having their client loyalty programme by introducing a membership programme, to encourage their consumers to spend more to enjoy more reward points. I have been purchasing a power cable from Challenger, and I also opted for their membership programme. So far, I know that this programme could actually collect clients particulars and would send A&P emails to retail clients. 

Based on the Cash Flow Statement, the Free Cash Flow (Net Operating Cash Flow minus Purchase of PPE) was about S$15M and S$6.0M each for FY2012 and FY2011. Changes in working capital was the main reason of the difference of FCF for these two years.

So to make it easier to compute the intrinsic value based on dividend growth model. The intrinsic value based on required rate of return 15%, dividend growth rate of 5%, expected dividend of 2.35 cents would be around 23.5 cents. Compared with current share price of 57c, it is a bit high to me. However, if we could increase long term growth rate to about 10%, the intrinsic value could be increased to 47c. I would consider to purchase the counter if the share price could fall below 40c. 

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