At What Price Would Benjamin Graham Buy Ezion?

Ezion Holdings Limited (SGX: 5ME) has taken a dramatic fall of late. Over the last six months the share price has fallen from a high of more than S$1.90 a share to less than half that value. It is currently priced at 94 cents a share – its lowest price in around 52 weeks.

This fall was no doubt caused by the uncertainty surrounding the price of oil. An uncertainty that has naturally spread to companies related to the oil and gas industry such as Ezion.

As a provider of offshore services to the oil and gas sector, Ezion is not directly affected by the falling oil price. But as oil producers mothball rigs and reduce spending on exploration, the company’s business could take a hit.

But is the fall that Ezion has experienced fair? Or is the fear surrounding the company unjustified?

The company has experienced considerable top and bottom line growth. Over the last three years both total revenue and net income have nearly quadrupled.

Rising earnings and a falling price has left the company with a very high earnings yield of just over 20%. In theory the share price could more than quintuple to over S$5.35 before the earnings yield falls below the sought after value of 4%.

On the flip side the company could afford for its earnings to fall to one fifth of what they were in 2014 before the company ceases to offer value. Even with current uncertainty surrounding oil prices does this seem likely?

The fall in price has also left the company priced 15% below its book value. Thus company would have to rise to around S$1.08 before investors are forced to forgo their margin of safety.

Ezion’s balance sheet has also grown in strength over the last three years. Since 2011 the company’s total assets have grown from S$650 million to over S$4 billion. It would seem that Ezion made the most of the good times to bolster its balance sheet. The current ratio of 1.5 does not appear to be a cause for concern.

It would seem that at present Ezion holds a significant amount of value and the share price could even rise whilst still maintaining the interest of value investors such as Benjamin Graham.

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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.