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A Brokerage Rates Keppel Corporation Limited As A “Buy”: But Is the Stock Cheap Now?

Last week, business publication The Edge Singapore ran an article that mentioned a brokerage is optimistic about Keppel Corporation Limited’s (SGX: BN4) business prospects and has a “Buy” call on the company.

Keppel Corp is a conglomerate with a few major business divisions, including Offshore & Marine, Property, Infrastructure, and Investments. Over the last 12 months, Keppel Corp’s stock price has climbed 14.4%. The brokerage may think the conglomerate’s a “Buy,” but the important question for investors is this: Is Keppel Corp a cheap stock currently?

Unfortunately, there is no easy answer since there are many ways to look at a company’s valuation. But, we can still get some insight by comparing Keppel Corp’s current valuations with the market’s.

The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield. I will be using the SPDR STI ETF (SGX: ES3) as a proxy for the market; the SPDR STI ETF is an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).

Right now, Keppel Corp has a PB ratio that is just 0.78 times that of the SPDR STI ETF (0.98 vs. 1.26). So, the conglomerate is cheaper than the market, based on the PB ratio. Meanwhile, Keppel Corp’s dividend yield of 3.2% is also slightly higher than the SPDR STI ETF’s yield of 3.1% (the higher the yield is, the lower a stock’s valued). Where Keppel Corp falls short is in the PE ratio. The conglomerate’s current PE ratio of 14.6 is 26% higher than the market average.

Given what we’ve seen, I think it’s fair to say that Keppel Corp is priced fairly when compared to the market. This takes into account the conglomerate’s relatively more attractive PB ratio and dividend yield, but higher PE ratio.

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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.