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BreadTalk Group’s Valuation – Now Vs Past

BreadTalk Group Limited (SGX: 5DA) is a food company with 3 major business segments.

The first is Bakery, which consists mainly of its flagship Breadtalk and Toastbox outlets, plus the niche concept Bread Society. The next segment, Restaurants, boasts brands such as Din Tai Fung, Carl’s Jr. and Ramen Play. Lastly, Food Republic concept makes up most of the Food Atrium segment, where it operates 58 outlets worldwide.

The company shares, which have fallen some 12%, are at 52-week low.

Investors might be curious as to whether BreadTalk’s current valuation is low. There is no simple answer to that question.

But we will try to answer the above by comparing BreadTalk’s current valuation to its historical valuation in term of the price-to-book, price-to-earnings and dividend yield.

Price to book ratio (P/B)

breadtalkpb

Source from Morningstar.com

As we can see from the chart above, the price-to-book ratio for BreadTalk has ranged from 2.0 and 4.3 in the last five years.

At price $1.01 today, BreadTalk’s Trailing Twelve Month price-to-book ratio of 2.3 times is towards the lower end of the range.

To put it in simple terms, BreadTalk is currently cheap compared to its five-year valuation. 

Price to earnings ratio (P/E ratio)

breadtalkpe

Source from Morningstar.com

From the chart above, we can see that BreadTalk traded at P/E ratios of between 11.6 and 30.8 in the past five years.

Presently, the company is trading at P/E ratio of about 36.1, which is higher than the even the highest P/E ratio of the last five years.

Thus, if P/E ratio is used as a sole metric, BreadTalk could be said to be expensive. 

Dividend yield

breadtalkyield

Source from Reuters

In terms of the dividend yield, we can see that current yield of 1.49% is marginally higher than the 5 years average of 1.39%.

As we all know that dividend yield is an inverse of valuation, thus, the higher the yield, the lower the valuation.

As such, we can see that BreadTalk’s current valuation, on the basis of dividend yield, is marginally lower than its five-year average.

In summary, we could argue that BreadTalk is trading at relatively cheap valuation compared to its five-year measures. The high P/E ratio, nevertheless, is due to weaker earnings.

Lastly, investors should try to delve deeper into BreadTalk’s future prospects since current valuation will not improve unless the company improves its earnings.

This will mean that investors need to look into other aspects of the company – such as growth and cost control, that will determine whether BreadTalk can regain its previous valuation.

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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.