The Motley Fool

Is City Developments Limited A Bargain?

City Developments Limited (SGX: C09) is one of the 30 stocks that make up the Straits Times Index (SGX: ^STI). Its main business lies in the real estate sector.

It is a property developer, developing both residential and commercial properties. Other than being a developer, it is also an owner of numerous commercial properties, hotel properties, serviced apartments, and serviced offices.

Beyond these, the company also provides facility management services and has a 61% stake in London-listed hotel owner and operator, Millenium & Copthorne Hotels plc, one of the largest businesses of its kind in the world.

By having its wings spread across a wide spectrum of the real estate sector, City Developments has diversified its earnings base. This gives the company the much-needed stability to ride out downturns in specific sub-sectors within the larger real estate sector.

Recently, City Developments has been getting quite a bit of negative forecasts from market strategists. But is there nothing to like about the firm as an investment? Let’s look at the company from a value investor’s perspective to see if it’s a bargain at current prices.

City Developments is currently trading at a price of S$7.20. Based on earnings of S$0.808 over the last 12 months, City Developments’ Price to Earnings (P/E) ratio stands at 8.9. This is significantly lower than the P/E ratio of the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – which stands at 11.7.

As at end-September 2015, the company had a Net Asset Value (NAV) of S$9.53, which would mean the company is also trading below its NAV at current prices.

One thing to take note about City Developments’ NAV though, is that the company does not revalue its properties each financial year. This means that the NAV is calculated based on the property cost (price paid when purchasing the property) less depreciation and impairments. So, the NAV of City Developments could possibly be substantially higher if revaluation is taken into consideration.

The real estate company’s Net Gearing ratio is also fairly decent at 0.30.

Meanwhile, the dividend yield based on 2014’s payout of S$0.16 is 2.22%. The dividend was also only at 20% of earnings that year. Investors may feel reassured that the company should be able to maintain its dividend payouts in the years to come due to the relatively low payout ratio at the moment.

Looking at the four value metrics above, it does seem like City Developments might, at the very least, be worth a deeper look by the value investor.

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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 City Development Limited.