Are Sembcorp Industries Limited’s Current Valuations High Or Low When Compared To History?

Sembcorp Industries Limited (SGX: U96) is one of the largest conglomerates in Singapore’s stock market. It has three different operating business segments, namely, Utilities, Marine, and Urban Development. The Marine segment’s contribution comes from Sembcorp Industries’ 61% ownership stake in oil rig builder Sembcorp Marine Ltd (SGX: S51).

Over the last 12 months, Sembcorp Industries’ share price has jumped by some 44%. Given this strong performance, I thought it would be interesting to look at the conglomerate’s current valuations and compare them with history.

The valuation metrics I want to focus on here are the price-to-book (PB) ratio and price-to-earnings (PE) ratio.

Here’s a chart showing Sembcorp Industries’ PB ratio over the past five years:

Sembcorp Industries' PB ratio over past 5 years
Source: S&P Global Market Intelligence

Sembcorp Industries currently has a PB ratio of 0.90 and as the chart above shows, the valuation measure is clearly near a five-year low. In the past five years, Sembcorp Industries’ PB ratio reached a high and low of 2.51 and 0.60, respectively.

In the next chart below, we have Sembcorp Industries’ PE ratio over the past five years:

Sembcorp Industries' PE ratio over past 5 years
Source: S&P Global Market Intelligence

Interestingly, Sembcorp Industries’ current PE ratio of 21.2 is actually at a five-year high. The lowest the ratio had reached was just 5.5. The dichotomy between Sembcorp Industries’ PE and PB ratios could be a sign that the company’s getting less adept at producing a profit from the shareholders’ equity it employs.

In sum, when compared to history, Sembcorp Industries has a high PE ratio but low PB ratio.

There’s reason to think that the PB ratio is a more suitable metric to gauge the valuation of Sembcorp Industries right now. That’s because the earnings of its Marine segment is currently depressed due to the downturn seen in the oil and gas industry as a result of low oil prices (oil prices are currently around half of what they were in mid-2014).

In any case, it’s worth keeping in mind that none of the above is meant to be the final word on whether Sembcorp Industries will be a good or bad investment going forward. At the end of the day, valuation ratios are only one of many aspects about a company that investors should consider before making an investment decision.

Take the data you’ve seen here merely as a useful starting point for further research.

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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.