The Straits Times Index (SGX: ^STI) has been slowly creeping up and setting new highs, shooting past the 3,400 point for the first time since Nov 2008 in early May this year. The STI subsequently fell to the high 3,300s before hitting a new peak of 3,456 on 17 May 2013. With the index hitting new heights, it’s natural to wonder if shares are cheap. It’s also not hard to notice some fairly expensive shares found within the STI. There are three shares trading above S$30 apiece which would set an investor back by more than S$30,000 for…
The Straits Times Index (SGX: ^STI) has been slowly creeping up and setting new highs, shooting past the 3,400 point for the first time since Nov 2008 in early May this year. The STI subsequently fell to the high 3,300s before hitting a new peak of 3,456 on 17 May 2013.
With the index hitting new heights, it’s natural to wonder if shares are cheap. It’s also not hard to notice some fairly expensive shares found within the STI. There are three shares trading above S$30 apiece which would set an investor back by more than S$30,000 for one lot of a 1,000 shares. That’s not a sum of money to sneeze at for regular folks like you and me. But, just looking at share prices alone cannot tell us much – there’s a business underlying those shares and we have to consider what we are entitled to as part owners of the business with each share we are looking to buy.
With that, let’s take a look at the three most highly-priced shares found in the index, all of which belongs to the sprawling global conglomerate, the Jardine Matheson Group
1. Jardine Strategic Holdings (SGX: J37)
Jardine Strategic Holdings is a holding company with substantial ownership stakes in other locally-listed businesses like retailer Dairy Farm (78% ownership), hotelier Mandarin Oriental (74% ownership) and its corporate cousins Jardine Matheson Holdings (55% ownership) and Jardine Cycle & Carriage (73% ownership). The company’s shares have increased by more than 1490% in price from US$2.55 a decade ago, leaving the STI’s 170% return in the dust.
Its business has also grown substantially along the way, with sales increasing more than five-fold from 2003 to last year’s US$33.1b. With such performances comes the ability to pay bigger dividends to shareholders and the company has an unbroken streak of yearly dividend increases going back to at least 2004.
Shares of the holding company currently trade at US$40.65, roughly equivalent to S$50.40. Before it is dismissed as being overpriced, bear in mind that each share of the company made US$2.99 last year. That translates into a current last-12-months’ Price-Earnings (LTM PE) ratio of 13.6, which is about in-line with the STI’s PE of 14. However, its current dividend yield of 0.6%, based on last year’s full year pay-out of US$0.24, is a lot lower than the market’s yield of around 2.9%.
2. Jardine Cycle & Carriage (SGX: C07)
Next on the list is Jardine Cycle & Carriage, which owns 50% of Indonesian company Astra. Due to Jardine C&C’s ownership of Astra, it has operations in diverse industries including; the automotive industry; financial services; mining; agriculture; infrastructure and logistics; and information technology.
A ten-fold and three-fold increase in sales and earnings respectively for the company from 2003 to 2012 has helped propel its share price by 870% from a decade ago to its current level of S$45.79. While its shares cost substantially more than most of its STI brethren, its LTM PE of 13.8 is again on par with what investors are paying on average for each dollar of profit in the overall stock market.
Indeed, from a PE-vantage point, it seems that Jardine C&C’s at a cheaper price when compared against Singapore Airlines (SGX: C6L), for example, with its lower share price of $10.93, but lofty LTM PE of 34.
Last year, it paid out S$1.51 per share in dividends to give its shares a dividend yield of 3.3%.
3. Jardine Matheson Holdings (SGX: J36)
The last of the trio is also the one with the highest share price – each piece of Jardine Matheson Holdings would set investors back by US$67.62 (about S$83.80), a result of the climb of more than 1000% from US$5.85 per share a decade ago.
But, even at a current price that’s 125 times that of Thai Beverage’s share price of S$0.67, Jardine Matheson sports the same PE of 15 as the Thai beer brewer – meaning investors are paying the same amount for every dollar of earnings for both companies. This shows how little information can be conveyed about a business just from its share price alone.
Jardine Matheson Holdings owns 82% of Jardine Strategic. As a result of the complex cross-holdings between the former and latter, we see Jardine Matheson Holdings having substantial stakes in businesses as diverse as supermarket retailing, insurance broking, engineering, construction, restaurants and hotels among many others.
From 2003 to 2012, the company’s revenue had grown by more than 3.5 times to last year’s US$39.6b. Meanwhile, the company’s profits had grown a stunning 25 times to US$1.69b and such results would have gone a long way in pushing up its shares to current levels.
The company’s current dividend yield stands at 2% based on 2012’s payout of US$1.35 per share. That’s not very attractive when compared to the market’s previously-mentioned-yield of 2.9% but Jardine Matheson’s another company with an unbroken streak of dividend increases since 2004, which might attract income investors looking for potential dividend growth.
Foolish Bottom Line
It’s easy to balk at shares with high prices, especially given how most of us can only invest in 1,000-per-share-lots which might make shares with high absolute prices unfeasible for investment. But, it is also folly to ignore shares just because they have a high absolute price.
Besides, there are Share Builder Plans like those offered by Phillips Securities that provides a roundabout to the problem of requiring a huge capital outlay for high priced shares – SBPs allows investors to purchase odd lots in certain blue chip counters.
Again, a high share price alone can’t tell us if a share is overvalued. Investors have to look at the business fundamentals underlying a share to understand its value proposition. It doesn’t matter if Jardine Matheson’s Singapore’s most expensive share. If it can keep up its growth like it has done in the past, then a share price of US$67.62 could just be the beginning of its long-term success starting from here. As investors, we have to keep in mind that a share price alone, tells us nothing.
Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo , Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook to keep up-to-date with our latest news and articles.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.