3 Ways Stocks Can Grow Your Wealth

2021-04-06     thesmartinvestor
3 Ways Stocks Can Grow Your Wealth

Companies can grow their business in a number of ways.

Some may decide to construct new factories to expand their capacity as demand remains strong for the products and services they offer.

Others may collaborate with partners to enhance their supply chain or broaden their revenue streams.

The presence of growth alone is not enough.

It has to be sustainable as well.

Growth may falter or stumble when the business faces challenges or competition.

Therefore, it is worth your time to pay attention to the different strategies used by companies to grow their business.

Here are three examples of companies that used different methods to grow their respective businesses.

Olam International Ltd (SGX: O32)

One method used by large companies involves “breaking up” the business into separate parts to unlock value for shareholders.

This move had been announced by Olam International, a vertically integrated agri-business that supplies food, ingredients and fibre, back in January.

The S$5.7 billion group has made significant headway in reorganising its business into two new operating groups, Olam Food Ingredients (OFI) and Olam Global Agri (OGA).

OFI will be demerged from Olam through a dividend-in-specie.

In layman terms, the group will be giving out shares of OFI to eligible shareholders of Olam).

As for OGA, management is still exploring options to grow the business.

This separation is expected to be completed by the end of this year.

Other blue-chip companies such as CapitaLand Limited (SGX: C31) and Sembcorp Industries Ltd (SGX: U96) had also announced similar moves to unlock value for shareholders.

CapitaLand intends to privatise its development arm and re-list its investment arm under a new entity called CapitaLand Investment Management.

Sembcorp Industries had divested its stake in Sembcorp Marine Ltd (SGX: S51) through a demerger and recapitalisation exercise back in June last year.

Mindchamps Preschool Ltd (SGX: CNE)

Growth can also be achieved through partnerships, as Mindchamps intends to demonstrate.

The group operates a range of premium preschools in Singapore, the Philippines, Myanmar and Australia. As of 31 December 2020, Mindchamps operated a total of 85 preschools.

Intent on global expansion, the group’s master franchisee in Malaysia, Victoria Education Sdn Bhd, has formed a joint venture (JV) with Sunsuria Arena Sdn Bhd, a unit of Sunsuria Berhad (KLSE: 3743), to open a new preschool in Sunsuria City in Selangor, Malaysia.

Victoria Education will hold 70% of the JV while Sunsuria Berhad will hold the remaining 30%.

CEO David Chiem is excited about this partnership and the opportunity to expand the Mindchamps brand into Malaysia.

Kimly Ltd (SGX: 1D0)

The third method that companies use to grow their business is through acquisitions.

Kimly is one of the largest traditional coffee shop operators in Singapore.

The group operates and manages 83 food outlets and 137 food stalls around Singapore. Its portfolio of brands also includes Tonkichi (two outlets) and Rive Gauche Patisserie (eight outlets).

On 1 April, Kimly announced that it will acquire a 60% stake in Klovex, a general solutions cleaning provider, for S$1 million.

The group will pay for the acquisition using S$700,000 of cash and by issuing one million new shares at S$0.30 apiece.

Klovex was incorporated in 2015 and has around 100 staff along with 40 cleaning contracts.

Kimly’s management believes that the demand for cleanliness and hygiene will remain heightened even after the pandemic is over.

Hence, it is making its first foray into the cleaning services business with this acquisition.

By having a new division, the group will also be expanding its revenue streams instead of just relying on food and beverage alone.

However, investors should note that Kimly has no expertise in cleaning services, implying that the acquisition may pose risks to the group in terms of managing this new division.

Get Smart: Assess on a case-by-case basis

The three examples above provide a flavour of how companies can grow their business and unlock value for shareholders.

Though there may be similarities to what other companies have announced, investors need to assess each specific case on its own merits.

Growth hinges on myriad factors such as the industry the company is in, the strength of its financial resources, its competitors, and also plain good luck.

But if the process is done right, growth investors should start seeing healthy capital gains on their investments in the medium term.

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

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