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Would Benjamin Graham Buy Singapore Exchange Limited?

Singapore Exchange Limited (SGX: S68), commonly referred to as SGX, has made headlines recently following its announcement to reduce the standard board lot size for securities on its exchanges from 1000 to 100 units from the 19 January 2015.

The change, as well as offering benefits to investors, has the potential to affect SGX positively. The ten-fold reduction in lot sizes could drive an increase in trading volume. That is great for SGX but does the company have what it takes to tempt a value investor like Benjamin Graham?

Whilst the earnings yield of 4.1% is not overly generous, the dividend yield, which is more applicable to the average investor, currently stands at 3.8%. This yield comfortably beats the risk-free rate of return of 2.4%. It makes the rewards on offer look tempting.

The risks involved in investing in SGX also seem limited. The company carries no debt, which is always a plus. The healthy current ratio the company possesses, which is just shy of two that value investors look for, only adds to the allure of SGX.

So with seemingly limited risks and decent rewards, SGX could be a good investment. But is it a value share?

With a price to earnings ratio of 24, which is some way above the market average of 14, and a price to book of over eight times, SGX does not look cheap.

Singapore Exchange Limited is certainly a company to keep an eye on and it may very well offer something for many investors out there. However, in terms of a true value share, the high earnings multiple and lofty price-to-book together make it too expensive.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.