Share price of SATS popped today after it released its Q1 2024 results yesterday. Let's evaluate if we should invest in SATS Ltd. based on its latest financial results, current market conditions, and intrinsic value analysis.
Company Overview
SATS Ltd. is a leading provider of gateway services and food solutions in Singapore and internationally. The company operates through three main segments: Food Solutions, Gateway Services, and Others. SATS has a diversified revenue stream, with significant contributions from cargo handling, ground handling, and food solutions.
Latest Financial Results
SATS announced its financial results for the fiscal quarter ending June 30, 2024. Key highlights include:
- Revenue grew 15.5% YoY to S$1.37 billion
- Net Profit improved S$94.9 million YoY to S$65 million
- Free Cash Flow increased S$125.9 million YoY to S$36.7 million
SATS' key financial results for the fiscal year ending March 31, 2024.
- Revenue: S$5.1 billion, a threefold increase from the previous year.
- Net Profit: S$56.4 million, a significant turnaround from a net loss of S$26.5 million in FY2023.
- Free Cash Flow: Positive S$326.5 million, reversing a free cash outflow of nearly S$40 million a year ago.
Investment Moat
SATS Ltd. possesses several competitive advantages that constitute its investment moat:
1. Strong Market Position: SATS is a dominant player in the aviation services industry, providing essential services such as cargo handling, ground handling, and inflight catering.
2. Diversified Revenue Streams: The company has diversified its revenue sources, reducing reliance on any single segment. For FY2024, 49% of revenue came from cargo handling, 29% from ground handling, and 22% from food solutions.
3. Strategic Acquisitions: SATS has made strategic acquisitions, such as Worldwide Flight Services (WFS), enhancing its global footprint and service offerings.
4. Operational Efficiency: The company has demonstrated operational efficiency, with improving EBITDA margins and free cash flow generation.
Current Stock Price
As of the latest trading session, SATS Ltd.'s stock price is S$3.58 at the time of this post.
Intrinsic Value vs. Analyst Forecast
Analysts forecast that SATS will grow its earnings and revenue by 28.8% and 4.7% per annum, respectively. The intrinsic value of SATS is estimated to be around S$4.19 per share, suggesting that the stock is currently trading at a discount to its intrinsic value.
Price to Invest with Margin of Safety
To ensure a margin of safety, it is prudent to invest at a price that is at least 20-30% below the intrinsic value. Given the intrinsic value of S$4.19, a recommended entry price would be around S$2.93 to S$3.35. This range provides a buffer against potential market volatility and unforeseen risks.
Conclusion
Based on the latest financial results, strong competitive advantages, and current market valuation, SATS Ltd. presents a compelling investment opportunity. The company's robust recovery, diversified revenue streams, and strategic growth initiatives position it well for future growth. Investing at a price within the recommended range ensures a margin of safety, aligning with value investing principles.
Modify on 2024-08-21 15:55
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