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Is BreadTalk Group Limited Good Value?

If you have been to any of the malls in Singapore, you have probably seen Toast Box or Bread Talk.

Well these are just two of the brands that are owned by Bread Talk Group Limited (SGX: 5DA). Some of the other brands owned by the company include Food Republic, Ramen Play, Din Tai Fung, The Icing Room, Bread Society and Thye Moe Chan.

Bread Talk Group listed on the Singapore Exchange in 2003 at an initial offer price of $0.195, and today it is trading at $1.14. That’s a staggering 485% return over a 12-year period. So I guess investors who bought the stock at the IPO and have held it to date could be feeling pretty happy.

Well the question you should be asking yourself now is whether it makes sense to buy at current prices.

For this we are going get help from 4 financial metrics to help us decide. These are the Price-to-Book ratio (P/B), the Price-to-Earnings ratio (P/E), Net Debt to Equity and the Dividend Yield.

  1. Price-to-Book ratio (P/B): The book value or the Net Assets per share of the company in its financial statements for the latest nine months of 2015 stood at $0.44. This would mean that the P/B ratio stands at 2.6. What this means is that as an investor you are paying 2.6 times the value of the Net Assets of the company. To put this into perspective it’s like saying you have to pay $2.6 for a $1 product.
  2. Price-to-Earnings ratio (P/E): Based on the latest earnings for Bread Talk, the company earned 2.29 cents in 9 months. Using this we could estimate the full-year earnings at around 3.05 cents. This would imply a P/E ratio of 37.37. This seems to be pretty high compared to the market’s P/E which is currently about 12.
  3. Net Debt to Equity (D/E): BreadTalk has roughly S$117 million of net debt on its balance sheet. Equity stands at S$124 million. This means the D/E ratio of the company is 0.94 times, implying that the company is almost 100% leveraged.
  4. Dividend Yield: BreadTalk paid a dividend of 1.5 cents last year. And had announced a 0.5 cents half-year dividend this year, which was similar to last year. Assuming the company pays out the same amount this year it would imply a dividend yield of 1.3%. This is much lower than the market dividend yield which stands at 3.3%.

From a value investor’s perspective, BreadTalk does not look compelling. But investors from a different school might think otherwise.

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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 Esjay does not own shares in Bread Talk Group Limited.