Monday, December 21, 2020

Companies with Free Cash Flow Yield of more than 10%

 After reading the book "Market Masters" a  few times, there are at least 2 "Masters" that swear by free cash flow yield. In fact, they both mentioned 8- 10% yield as a very attractive proposition. 

Hence, I did a scan of all the companies in my portfolio, excluding the reits and financial companies, and discovered several such companies. I calculated FCF yield by using 5 years average OCF minus  5 year average PPE minus 5 year Purchase of Business (If regular and significant), then divide by number of shares and then finally the price. Data drawn from FSM Screener. I gave Sembcorp Industries a miss, since it is considered a "new" business after demerger and Keppel, because its number are too volatile, for the numbers to be meaningful.

They are:

1) Lung Kee (HK 0255) (15%)

2)Yangzijiang (13%)

3) Lonking (HK3339) (13%)

4) *Diary Farm International (13%)

Closely followed by Silverlake Axis and Singpost in the 8-9 % range.

Do note that Diary farm has a debt to equity ratio of 3, according to the website.

Surprisingly, favourites like ST engineering and SATS, are having yield of 2.3-2.5%. 


Looking at the small sample of counters I have, it seems obvious that not all sectors yield such high FCF. Manufacturing seem to be a good place to look. 

Also, I believe valuation is due to a lot of factors, including potential for growth in the next 2-3 years. Or rather, the potential to exceed growth expectations. I am currently finalizing the qualitative part of my screen by giving it a score, beyond quantity numbers like FCF yield. Will share more later. 

Also, the FCF yield is taken with current ratio and debt to equity ratio, and the 2 companies that stand out are Lung Kee (Current ratio >4 and debt to equity ratio below 0.1) and YZJ (Current ratio >3 and debt to equity ratio below 0.2)

YZJ has HTM business. I did send an email asking what impact if any on the recent regulation on Fintech and Shadow Banking in china has on their HTM busines. But I receive no reply. Nonetheless, I do owned YZJ Shares. 

Some Companies that are recently listed like Koufu, are not calculated as the Integrated Facility increase Capex but is not reflective on it recurring Capex, and for Singpost, I only used 3 years average, not including the years when they are building SIngpost Center

7 comments:

  1. Hi SI,
    If you look closely, I think HK has a lot of companies in high yield range. How about CNOOC?

    ReplyDelete
  2. Hi bro Rolf

    I did look at it. I can't remember the numbers. But I look at them together with sinopec and the likes when u introduce them and I finalize with getting sinopec. :) Thanks to your recommendation.

    I saw many j like in HK. But j need to hold my fire.

    I am left with only 15 percent liquid cash and there are a few I quite like

    ReplyDelete
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