What You Should Know About Aedge Group Ltd (SGX: XVG) At Its Share Price of S$0.21

Aedge Group Ltd (SGX: XVG) was successfully listed on the Singapore stock market on 14 December. It opened at S$0.21, 5% above its initial public offering (IPO) price of S$0.20.

The company is a Singapore-based multi-services provider that was founded in 2000. It provides three main services — engineering, security and manpower, and transport services.

To know whether a company is worth investing in, we should analyse its business fundamentals.

Right here, let’s find out if Aedge is a “buy” in my opinion.

How Has Aedge’s Historical Financial Performance Been?

Firstly, before investing in any company, we need to find out how it has performed financially in the past.

Knowing the past performance through its financial statements can give us some clues as to whether the company has a strong business.

As for Aedge, its revenue has grown by around 9% over the last three years, but its net profit has trended downwards.

Correspondingly, Aedge’s net profit margin fell from 2.3% in FY2018 to 1.8% in FY2019.

The razor-thin margin shows that the company operates in a highly-competitive industry.

If Aedge needs to price its tender bids lower to maintain its competitiveness in the industry, it may even risk going into losses.

Generally, I prefer to invest in companies with net profit margins of more than 20% as that could mean they are price-makers and not price-takers.

Now, let’s turn our attention to Aedge’s balance sheet.

As of 30 June 2020, the company had S$5.5 million in cash and cash equivalents and S$3.6 million in total loans. It’s good to see that the company is in a net cash position.

Does Aedge Pay a Dividend?

Aedge said in its IPO prospectus that it currently doesn’t have a fixed dividend policy.

As is with any company, Aedge’s ability to declare dividends depends on its future financial performance.

When picking dividend companies, I would prefer them to have growing earnings and free cash flow (FCF). For context, Aedge’s FCF has fallen from S$2.6 million in FY2018 to S$0.7 million in FY2020.

Given that both profit and FCF have been declining over the years and that it operates in a highly-competitive industry, I don’t expect the company to be paying consistent dividends, even if it does start paying a dividend.

Is Aedge Cheap or Expensive? 

At Aedge’s share price of S$0.21 and its FY2020 earnings per share of S$0.004, it has a price-to-earnings ratio (P/E) of around 53x.

Here’s a brief comparison of Aedge’s valuation with that of its listed peers:

The Singapore stock market in general is also trading at a lower valuation.

The SPDR STI ETF (SGX: ES3), an exchange-traded fund (ETF) that can be taken as a proxy to the Straits Times Index (STI), has a P/E ratio of 13x and a dividend yield of 4%.

Given all of the above, Aedge’s shares look expensive to me at the moment.

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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any stock.