Is The Time Right To Prey On Falcon Energy Group?

There are five companies listed on the SGX lists with interests in coal. The companies have businesses ranging from upstream exploration and extraction activities through to downstream trading and distribution activities.

The largest of the five is Noble Group (SGX: N21), with a market capitalisation of over S$8b. But the company, which is involved primarily in downstream coal activities, might not be the best place for value investors to dig.

The company, which has seen a contraction in its net income over the last few years, is still priced at 30 times earnings. Appearing better value could be Falcon Energy Group Limited (SGX: 5FL) that is valued at 7.5 times earnings. This is considerably lower than the market average of 14.

Falcon is very much a minnow when compared to Noble. It is only worth S$211m. However, it is the only other of the big five coal companies to pay a dividend. Linc Energy Limited (SGX: TI6), Geo Energy Resources Limited (SGX: RE4) and Abterra Limited (SGX: L5I) do not.

Currently standing at 7.7%, the dividend yield on offer from Falcon is considerably better than Noble’s 1% payout.

Adding to the allure of Falcon is that it is currently priced at a 40% discount to its book value. That said, a wider margin of safety might be prudent when investing in small companies.

However, Falcon, which also has significant activity within the gas and oil industry, is in a healthy financial position. The company has some debt but interest payments are manageable.

Falcon has plans for new operations in Australia that is due to commence in 2015. Meanwhile, the company is optimistic about conditions in South Africa.

At present Falcon does not look too expensive and certainly ticks some of the boxes required by a value investor. It could be worth keeping a close eye on.

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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.