Venture Corporation (SGX: V03) just announced their FY 2024 earnings last Friday.
The company guided in the last quarter that revenue to remain relatively stable in 2H 2024 as compared to 1H 2024. As it turned out, 2H 2024 revenue dipped by 2.3% from 1H 2024 to S$1.35 billion, with net profit declining even less by 1.8% to S$121 million.
Read on for my opinions about what are the bad and good from this set of results. Also, why I feel unsure about the impact of the company’s Share Buyback Plan.
Let’s start with the obvious.
It’s the second consecutive year that Venture is reporting a drop in both their sales and net profits.
Tracing back further, this year’s performance is even worse than the pandemic period. And for the first time since 2017, their revenue is lower than S$3 billion.
While the supply glut in 2022 has a significant impact on the industry, the longer than expected recovery and the lowering of guidance along the year is worrying.
Is it just a wider industry’s weaker demand issue? Or is Venture losing market share? Did the management make strategic missteps during this period of time?
It doesn’t help that the company does not share the breakdown of its revenue based on their domains.
It is difficult to reconcile the statement that most tech domains saw revenue growth, when the overall 2H 2024 revenue is lower than the first half.
Although the drop is attributed to the Lifestyle Consumer tech domain, the lack of clarity on the size of the domain and the degree of the drop makes it difficult to understand how it could offset the gains of the other domains.
It would be a lot more useful and probably reassuring to the shareholders if Venture could provide more colour to the performance across each tech domain.
It’s not all bad news.
Net profit margin has remained strong at 9.0%, an indication of Venture’s resilience business model and operation efficiency, which has also resulted in strong operating cash flow.
Free cash flow continues to outpace its net profit this year and its net cash position rose for the sixth consecutive quarter to more than S$1.3 billion!
This means that despite the drop in income, the company is able to sustain its annual dividend payout of S$0.75.
The Unsure: Impact of Share Buyback Plan
However, this raises another question.
What is Venture going to do with its ballooning cash position?
Yes, the board has approved the acceleration of the Share Buyback Plan of the remaining 8.3 million shares, but I am unsure of its impact to the shareholders returns.
Shareholders either obtain a return from capital appreciation or dividends. So unless share buyback translates to a higher share price or dividends, we don’t benefit from it.
However, given that share price is affected by multitude of factors and Venture does not have a fixed dividend policy, the buyback and cancellation of shares doesn’t necessarily have a positive impact on shareholders’ return.
You might argue that the share buyback would have supported the share price in a weak market and boosted it in a strong one.
In theory, you are not wrong, but let’s crunch some numbers to determine the impact.
Even if all the remaining 8.3 million shares from the plan are cancelled, it will only boost the current earnings per share from S$0.844 to S$0.868, a mere 3%. The market, influenced by a range of factors, may not respond predictably to this minimal EPS adjustment.
I would have preferred the company to return the capital by special dividends. For the amount spent on share buyback, the company could easily declare a special dividend near to S$0.40!
Imagine the optic with this headline – “Venture Rewards Shareholders: S$0.40 Special Dividend Drives 50% Dividend Surge!”.
This is likely to have a larger impact on the short-term share price movement.
Moreover, I could then decide if I want to re-invest the dividend back in the company.
What do I plan to do?
My investment in Venture was primarily based on its history of reliable dividends, an objective I remain optimistic will be achieved.
Nevertheless, the ongoing decline in sales and profits is a concern. While the company’s strong cash position currently supports the dividend, sustained downward trends will put this buffer under pressure.
Therefore, I will closely monitor these indicators and reconsider my investment if they worsen.
Ultimately, Venture’s future hinges on its ability to reverse its revenue decline and effectively utilise its substantial cash reserves. As such, I intend to hold my existing shares while closely monitoring its progress, and adjust my investment accordingly.
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