Would Riverstone Holdings Limited Interest This Legendary Investor?

In the world of investing, Benjamin Graham can be considered as one of the greats.

Besides achieving long-term returns of around 20% per year for the fund he was managing, Graham’s also the author of the highly influential investing texts, Security Analysis and The Intelligent Investor. In addition, he’s widely thought of as the intellectual father of the value investing discipline.

It’s unfortunate that investors today can’t find out what Graham might think of the companies in Singapore’s stock market – he had sadly passed away in 1976. But, he did develop a 10-point investing checklist during his lifetime. Let’s run Riverstone Holdings Limited (SGX: AP4) through the checklist to see what Graham might have thought of the company.

But first, here’s a brief background on the company: Riverstone is a nitrile gloves manufacturer whose gloves are used mainly in the cleanroom and healthcare industries.

With that, let’s get cracking on the checklist:

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

Riverstone currently has a share price of S$0.905. With its latest earnings per share (for the 12 months ended 31 March 2016) of S$0.0597, it has an earnings-to-price yield of 6.6%.

As for the triple-A bond rate, the Singapore government 10-year bond currently has a yield of around 2.2%, according to the Monetary Authority of Singapore. Singapore has been given a triple-A credit rating by a number of rating agencies.

Given the figures seen above, Riverstone’s earnings-to-price yield is more than twice the yield of a triple-A bond.

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

Riverstone has a P/E ratio of 15 at the moment, as alluded to in Point 1. This is only 57% of the highest P/E of 26.5 that the company has had over the past five years.

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

An annual dividend of S$0.021 per share in 2015 gives Riverstone a dividend yield of 2.36% right now. This is higher than the triple-A bond yield we saw in Point 1.

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

Riverstone’s share price of S$0.905 is nearly four times higher than its tangible book value of S$0.235 per share.

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

With total current assets of S$102 million and total liabilities of S$28 million, Riverstone has a net current asset value of S$73 million. This is actually much lower than its market capitalisation of S$667 million.

6. Total debt less than tangible book value

With zero debt on its balance sheet right now, Riverstone ticks the right box here.

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

Riverstone’s total current assets is over four times higher than its total current liabilities of S$23.6 million.

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

As mentioned earlier, the company has zero debt.

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

Riverstone’s earnings per share has climbed by 11.5% annually from S$0.0189 in 2005 to S$0.0562 in 2015.

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

The glove maker’s earnings per share had declined by over 5% on two years in the past decade. Those years would be 2007 (a 19.7% fall) and 2011 (7.7%).

To sum it up, Riverstone has actually managed to meet six out of Graham’s 10 criteria. Given this, it’s likely Graham would at least be interested to dig in deeper. But, it must be noted that investors with a different investing preference as Graham’s can have a completely different view of Riverstone. 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.