What Keppel Corporation Limited Could Look Like To Value Investors

Value investors tend to search for investing opportunities amongst companies that have fallen hard in price.

One blue chip stock that has seen its share price sink over the past two years is marine engineering and property development conglomerate Keppel Corporation Limited (SGX: BN4). The company’s shares are down by 50% since 29 September 2014.

But, value investors also look beyond a company’s stock price movement. They study the business fundamentals carefully too.

There are many things about a company that value investors tend to focus on and it’s also true that different investors have their own set of preferred metrics. But in here, let’s observe three aspects of Keppel Corp’s fundamentals that value investors may be interested in: Its price-to-book (PB) ratio, price-to-free cash flow (PFCF) ratio, and how the business is growing.

The PB ratio

Keppel Corp has a PB ratio of 0.9 at its current share price of S$5.38. Here are two perspectives on this ratio. First, it is near a five-year low as you can see in the chart below:

Source: S&P Global Market Intelligence

Second, the SPDR STI ETF (SGX: ES3) has a PB ratio of 1.2. The SPDR STI ETF can be seen as a representation of the stock market in Singapore given that it tracks the fundamentals of the local market benchmark, the Straits Times Index (SGX: ^STI).

The PE ratio

At its current share price, Keppel Corp is valued at 8.2 times trailing earnings. We can again look at this valuation metric from the same two angles as we did with the PB ratio.

In relation to Keppel Corp’s own PE ratio history, the company’s current earnings multiple is near a five-year low. This is shown in the following chart:

Source: S&P Global Market Intelligence

As for the market’s PE, the SPDR STI ETF has a PE of 12, which is higher than Keppel Corp’s 8.2.

Growth trend in the business

Keppel Corp has seen its revenue and earnings decline steadily over the past five years from 2011 to 2015.

Source: S&P Global Market Intelligence

The first-half of 2016 was more of the same. Revenue had fallen by 37% year-on-year, profit’s down by 45%, and the interim dividend had been slashed by 50%.

A Foolish conclusion

To sum it up, Keppel Corp has PB and PE ratios that are near five-year lows and that are lower than the market averages. Value investors could like these traits. But, the company has also seen its top- and bottom-lines fall hard in recent years, and that’s something that could really worry value investors.


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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.