Would Benjamin Graham Buy Fragrance Group Limited?

Fragrance Group Limited (SGX: F31) is an investment holding company engaged in real estate development and hotel ownership and management.

Over the last 12 months the company’s share price has fallen from a high of S$0.25 to S$0.21, which is close to its 52-week low of S$0.205.

The company boasts an earnings yield of 10.7%. This is around five times more than the return that can be earned risk-free through 10-year US-Treasury bonds. A look at the company’s recent income statements also shows reasonable growth in both its top-line revenues and bottom-line profits over a five-year period.

However net income was down around 25% in 2014. Additionally, the dividend payout of S$0.01 in 2013 was not repeated in 2014. Elsewhere, the company’s price-to-book of 1.4 makes it appear expensive.

A current ratio of 1.7 isn’t exactly troubling. However, the high gearing ratio which currently stands at around 97% could be. Fragrance has total debts of S$1,005m compared to shareholder equity of S$1,038m. With potential interest rate rises a possibility, debt could be worry.

Fragrance is also heavily dependent on the Singapore property market. So all things considered, whilst its metrics might make it look fairly cheap, the outlook for the industry suggests a need for caution.

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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.