What Would This Legendary Investor Think About M1 Ltd Right Now?

When talking about legendary investors, Benjamin Graham would have to be on the list.

He had amassed a great long-term track record with his investment fund and had mentored billionaire investor Warren Buffett. In addition, Graham’s the author of the highly influential investment books, Security Analysis and The Intelligent Investor.

Unfortunately, it’d be impossible for anyone today to find out what Graham may think of the companies in Singapore’s stock market – he passed away forty years ago in 1976. But, Graham did develop a 10-point investing checklist during his career. Let’s run M1 Ltd (SGX: B2F) through the checklist to see what it may look like through Graham’s lens.

But first, as a brief background, there are three telecommunications services provider in Singapore and M1 is the smallest of the trio. Unlike one of its larger rivals, M1’s business is predominantly based here too.

With that, let’s get going on the checklist (all data from S&P Global Market Intelligence, unless otherwise stated):

1. An earnings-to-price yield at least twice the triple-A bond rate

M1 has a trailing earnings per share of S$0.187 (based on its latest financials for the 12 months ended 31 March 2016). At its current stock price of S$2.46, that gives rise to an earnings-to-price yield (earnings divided by stock price) of 7.6%.

Meanwhile, the Singapore government 10-year bond has a yield of 2.03% right now, according to the Monetary Authority of Singapore. Currently, there are a few credit rating agencies that have given Singapore a triple-A rating.

So, it’s clear that M1’s earnings-to-price yield is over twice a triple-A bond yield.

2. P/E ratio that is 40% or less than the highest P/E ratio the stock has had over the past five years

M1’s highest P/E ratio over the last five years is 21.6. The company misses the mark as its current P/E of 13.2 is only 61% of the peak valuation.

3. A dividend yield of at least two-thirds the triple-A bond yield

Thanks to its dividend of S$0.153 per share in 2015, M1 has a dividend yield of 6.2% at its current stock price. That’s higher than the triple-A bond yield we’ve seen earlier.

4. A stock price that’s below two-thirds of the tangible book value per share

Let’s see: M1’s tangible book value per share is S$0.36, and that’s a lot lower than its stock price of S$2.46.

5. A stock price below two-thirds of net current asset value (total current assets minus total liabilities)

M1 has S$237 million in total current assets but S$634 million in total liabilities, which gives rise to a negative net current asset value. Meanwhile, there’s a zero-bound to M1’s stock price.

6. Total debt less than tangible book value

M1’s total debt and tangible book value stand at S$312 million and S$337 million, respectively.

7. Current ratio (total current assets divided by total current liabilities) greater than two

With the aforementioned total current assets and total current liabilities of S$521 million, M1 has a current ratio of merely 0.45.

8. Total debt less than twice of net current asset value

From the numbers we’ve seen earlier, M1 has a positive debt figure but a negative net current asset value.

9. Compound annual earnings growth rate of 7% over past 10 years

M1’s earnings per share of S$0.164 in 2005 had grown to S$0.191 in 2015 – that works out to a compound annual growth rate of just 1.5%.

10. Stability of earnings: No more than two years of declining earnings of 5% or more over the past 10 years.

From 2005 to 2015, there have been only two years in which M1 has seen its earnings per share fall by over 5%. Those two would be 2008, when a 9.2% decline occurred, and 2012, when earnings came in 11.2% lower.

Of Graham’s 10 points, M1 has met only four. It’s thus unlikely that Graham would be interested in the telecommunications company. But, it’s worth noting that investors with a different investing preference as compared to Graham can have a completely opposite view of M1. That would be fine too.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.