2 Cash Cow Companies with Earnings CAGR more 20% for the past 3 years

A cash cow is one of the four categories (quadrants) in the growth-share, Boston Consulting Group’s ("BCG") matrix that represents a product, product line, or company with a big market share within a mature industry.

BCG Matrix was created in 1968 by BCG’s founder, Bruce Henderson. The matrix is a portfolio management framework that helps companies decide how to prioritise different businesses by their profitability.

Typically, cash cows companies require little investment capital and could provide positive cash flows, which then can be allocated to other divisions within a corporation. Hence, they are known to have lower risks, while dishing out regular dividends to shareholders.

With that in mind, we will be looking at 2 cash cow companies:

• Hanwell Holdings Limited (SGX: DM0)
• Cortina Holdings Limited (SGX: C41)

1) Hanwell Holdings Limited (SGX: DM0)

Established in 1974, Hanwell Holdings Limited (“Hanwell”) is a homegrown consumer essentials provider that manufactures, distributes and markets a diverse range of quality consumer products.

Some of its well-known household brands include Royal Umbrella rice, Golden Peony rice, Golden Circle Oil, Fortune Food, and Beautex. Its distribution reach covers all major supermarkets/hypermarkets, convenience stores, minimarts, e-commerce, food service, and commercial industries.

Key Statistics

Historical Financial Performance

For the trailing 12-month financial performance, Hanwell’s revenue grew by 8.91% to S$513.40 million. The higher revenue was contributed by its Packaging Business (Tat Seng Group) due to both the increase in sales volume for both Singapore and China region and the increase in selling prices.

Meanwhile, its profit after tax grew by a modest rate of 1.29% to S$33.52 million. The increase was partially offset by higher costs of sales, distribution and administrative expenses.

Free Cash Flow

Apart from the negative free cash flow recorded in FY2018, Hanwell saw a positive and growing free cash flow since then. For FY2019, its free cash flow stood at S$32.09 million and has grown to S$33.07 million in FY2020.

This shows that Hanwell’s business segments are able to generate positive free cash flow for the company to sustain its business and distribute dividends to shareholders.

2) Cortina Holdings Limited (SGX: C41)

Cortina Holdings Limited (“Cortina”) was listed on the Mainboard of Singapore Exchange since 29 July 2002. Since its establishment in 1972 till now, Cortina’s main business focuses on the retail and distribution of luxury and high-quality timepiece and accessories.

Key Statistics

Historical Financial Performance

For the trailing 12-month financial performance, Cortina’s revenue increased by more than 30% to S$587.46 million. The increase in revenue was largely due to the easing of restriction particularly in Singapore and Thailand and the additional revenue from the acquisition of the Sincere Watch Limited Group in March 2021.

With the higher revenue, Cortina’s profit after tax grew by 26.5% to S$54.19 million.

Free Cash Flow

For the past few financial years, Cortina has been generating positive free cash flow. For FY2021, its free cash flow stood at S$73.84 million and has grown to S$90.65 million in the trailing 12-month period.

This indicates that the company is able to produce strong free cash flow from its business operations, which can be used for dividend payments or further investment into the company.

Conclusion

To conclude, the 2 companies mentioned above possess the traits of a typical cash cow company. Given their historical financial performance and positive free cash flow, investors can expect the ‘milking’ of dividends from their stable operations.

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