Would Benjamin Graham Buy GMG Global?

GMG Global Limited (SGX: 5IM) is a fully-integrated natural rubber producer. The company is engaged in both the upstream and downstream aspects of the rubber production value chain.

At its current share price of S$0.06 a share, the company lies close to its lowest price over the last year of S$0.05. It is also some way from its corresponding high of S$0.10. This translates into a market capitalisation of S$430m and prices the company at around only 60% of its book value.

Last month the company announced some unconvincing results for the previous financial year that could lie behind the low share price.

With year-on-year revenues down 20%; gross profits down an even greater 50% and the company making a net loss of S$35m, perhaps it has justifiably been discounted.

In its defence the company points to a low global rubber price as one of the main factors hitting profits. In fairness to GMG Global, sales in terms of tonnage of rubber had risen by around 10% year-on-year.

GMG also claims that it is well positioned to benefit when global rubber prices begin to rise again. However when exactly this will happen adds a layer of uncertainty.

A further risk facing the company is the potential for rising wages in the countries that it operates. This could squeeze margins even further and could add to the woes of GMG before things could get better.

Finally, the company has taken on a fair amount of debt. At present the total debt stands at around one-third of the company’s total value. The current ratio of 1.5 is also on the low side and has been shrinking.

It would seem that GMG Global is cheap, but perhaps for a reason. Markets don’t like uncertainty and there is a fair amount of  uncertainty surrounding the market that company operates in.

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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.