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ComfortDelGro’s Share Price is Hitting a 52-Week Low: Can the Land Transport Giant Find its Mojo?

Comfort Taxi
Comfort Taxi

ComfortDelGro Corporation Limited (SGX: C52), or CDG, is going through a tough time.

Its share price has touched a 52-week low of S$1.10 recently and is down 23.2% in the past year.

The group is still facing headwinds even as economies reopen and life resumes some semblance of normalcy.

Recall that CDG had declared a special dividend back in August last year as it booked an exceptional gain from the disposal of a London property.

Despite this, the land transport giant was dropped from the benchmark Straits Times Index (SGX: ^STI) just a month later and replaced by the Filipino brandy and spirits company Emperador Inc (SGX: EMI).

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Can CDG find its mojo again and see its share price recover to its previous highs? Let’s find out.

A weak first quarter

CDG released its business update for 2023’s first quarter (1Q 2023) recently.

It was a mixed result for the group as it continued to grapple with higher costs arising from inflation along with manpower shortages.

Revenue inched up 2.1% year on year to S$906.4 million, with year-on-year increases across all its divisions except Driving Centre and Bus Station.

However, operating profit excluding non-recurring items fell by 25.6% year on year from S$67.3 million to S$50.1 million.

As a result, net profit plunged nearly 57% year on year to S$32.8 million.

To be sure, 1Q 2022’s financials included a S$37.2 million gain on the disposal of CDG’s Alperton property in London.

Adjusting for this, net profit would have declined by 15.7% year on year.

Despite the lower profit, CDG continued to churn out a positive free cash flow of S$89.6 million.

Management has disclosed that interest rates remain high, thereby raising its finance costs and that it will monitor the situation.

Oil and gas prices, a key component of CDG’s operating costs, are lower but remain volatile due to the Russian-Ukraine conflict.

Acquisitions take time

CDG’s path to grow its top and bottom lines has been largely acquisitive.

The group has made several choice acquisitions in the past 18 months but these will take time to show results.

It is also normal for acquisitions to require a gestation period and there may be integration issues as well.

In March, CDG purchased the remaining 10% of Ming Chuan Transportation, paying a sum of S$1 million, and made the company a wholly-owned subsidiary.

Ming Chuan is one of the largest wheelchair transport service providers in Singapore and the acquisition means CDG has entered the medical care sector.

Elsewhere, the group also acquired Vedamain Limited, a private hire business under the KingKabs brand in the UK, for approximately S$11.8 million.

Apart from these two purchases this year, CDG also conducted acquisitions in the UK, Ireland, and Australia last year.

These acquisitions will take time to bear fruit and the group may undertake more of these in the coming months to boost its presence and capabilities.

Inflation remains a bugbear

This year’s annual general meeting (AGM) saw a range of questions being fielded by management as shareholders asked about various aspects of the business.

Management explained that its UK business has been affected by escalating wages and fuel prices.

However, it will try to look for more opportunities to tender for new packages and is confident that business performance will improve once the situation stabilises.

Back home, Singapore’s inflation for April has stayed constant at 5%, similar to March, as the prices of goods and services remained higher than expected.

This level of inflation will continue to put pressure on CDG as it negatively impacts its operating profit.

Investments to carry on

One area that CDG is looking at is electric vehicles (EVs).

The group had won two public tenders but payback was slower than expected as the number of EVs has not grown significantly in Singapore.

Management, however, foresees that in time to come, Singapore will move towards zero emissions and that EVs will be a strong growth pillar for CDG.

Despite facing challenges in the UK, CDG is committed to building its existing footprint there and does not intend to pull back.

The incoming chairman, Mr Greaves, also shared his priorities for CDG moving forward.

He will continue to improve the group’s service quality and business reliability to increase earnings by tapping into opportunities opened up by new areas or technologies.

Get Smart: Patience is required

It appears that CDG is still grappling with headwinds and is trying to stabilise its cost base in the various countries it has a presence in.

The new chairman will need time to size up the business and implement changes.

Acquisitions will also need a gestation period before they contribute positively to the business.

Investors will need more patience and should continue to monitor the business developments of CDG.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

The post <strong>ComfortDelGro’s Share Price is Hitting a 52-Week Low: Can the Land Transport Giant Find its Mojo?</strong> appeared first on The Smart Investor.