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Would Benjamin Graham Buy Sembcorp Industries?

Sembcorp Industries (SGX: U96) is a constituent of the Straits Times Index (SGX: ^STI) and a leading energy, water and marine group. With operations across six continents, 10,000 employees and total assets of over S$14b, Sembcorp Industries is truly a global company.

Like many stocks, Sembcorp has seen its share price take a tumble recently. Its 52-week high is S$5.59 and the share price stood at S$5.53 as recently as July. However, over the last month, Sembcorp has fallen close to its lowest value for the year and is currently priced at only S$4.86 a share.

Could this be good news for the value investors?

The company has seen a steady flow of income and its earnings yield is an impressive 10%. But unless you’re planning on buying the whole company you are unlikely to see much of this profit returned to you – the company’s dividend yield is only 2%. That is in fact below the risk-free rate of return of 2.4% that investors can expect

From these measures of reward it is unlikely a value investor such as Benjamin Graham would consider Sembcorp an obvious value opportunity until and unless it increased its returns to investors.

However, even if it was to increase its dividends, Sembcorp may still fail to meet other measures of value.

A price to book of 1.6 is certainly not indicative of a cheap company. Perhaps the company might have to fall further from its current market capitalisation of S$8.5 billion before it could look cheap enough for someone of Benjamin Graham’s ilk.

The total debt of the company is less than half of the book value which is somewhat promising. However a current ratio of only 1.1 paints a picture of a company that could perhaps do better.

Whilst the measures of risk involved in Sembcorp Industries don’t necessarily provide the clearest picture, the low returns on offer to investors through dividends are likely to see many shun the company as a value investment for now.

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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.