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After Falling By 24% In A Month, Would Venture Corporation Ltd Attract Warren Buffett’s Investing Mentor?

Over the past month, Venture Corporation Ltd’s (SGX: V03) stock price has fallen by 24%, even as the market – represented by the Straits Times Index (SGX: ^STI) – has gained 4.5%. Venture’s steep decline made me think that it’ll be interesting to look at the company from the perspective of Benjamin Graham.

Although the late Graham may not be very well-known to the general public, he’s a bona-fide investing legend. He was the investing mentor of billionaire investor Warren Buffett, and also authored two classic investment books, namely, Security Analysis and The Intelligent Investor. In his days as a professional investor, Graham loved searching for bargains. And during his career, he had developed a 10-point investing checklist which can help us look at stocks from his vantage point.

Here’s how Venture stacks up, according to Graham’s checklist:

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

An earnings-to-price yield is the inverse of the P/E ratio. At Venture’s current stock price of S$20.89, it has an earnings-to-price yield of 6.33% thanks to its trailing earnings of S$1.32 per share.

Data from the Monetary Authority of Singapore show that the 10-year Singapore government bond has a yield of around 2.5% right now. I trust it’s obvious to see that Venture’s earnings-to-price yield is more than twice the triple-A bond rate. (Singapore currently has a triple-A credit rating from a number of credit rating agencies, so the aforementioned 10-year Singapore government bond yield can be seen as the triple-A bond rate.)

Verdict: Yes

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

The highest P/E ratio Venture has had in the past five years is 27.6. The company is not able to clear the hurdle here given that 40% of the max P/E ratio of 27.6 is 11.0, which is much lower than the company’s current P/E ratio of 16.2.

Verdict: No

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

Based on Venture’s dividend of S$0.60 per share in 2017, it has a dividend yield of 2.87%. This is marginally higher than the triple-A bond yield of around 2.5%.

Verdict: Yes

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

According to Venture’s latest financials (as of 31 March 2018), it has a tangible book value per share of S$5.36. The company’s current stock price is way higher.

Verdict: No

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

Venture fails this hurdle too. At its current stock price, it has a market capitalisation of S$6.49 billion; its net current asset value is merely S$1.30 billion.

Verdict: No

6. Total debt less than tangible book value

This is where Venture shines. It has total debt of just S$30.8 million, and a tangible book value of S$1.53 billion.

Verdict: Yes

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

With total current assets of S$2.28 billion and total current liabilities of S$0.97 billion, Venture has a current ratio of 2.34.

Verdict: Yes

8. Total debt less than four-thirds of the net current asset value

We know what the dollar amounts of the company’s net current asset value and total debt are. Some simple calculations will reveal that Venture has done well here.

Verdict: Yes

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

Venture’s earnings per share has increased by just 1.89% per year from 2007 to 2017.

Verdict: No

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

From 2007 to 2017, Venture saw its earnings per share fall by 5% or more in six separate years.


Source: S&P Global Market Intelligence

From the table above, we can also see that Venture’s earnings have suffered large falls of over 40% in 2008 and 2014.

Verdict: No

In a roundup of the scores, Venture has managed to meet five of Graham’s 10 criteria. It’s thus hard to imagine that Graham would be interested in Venture at its current price. But it’s also worth noting that Graham’s checklist should not be seen as the final word on Venture’s investment merits – the checklist should only be taken as an informative 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 writer Chong Ser Jing does not own shares in any companies mentioned.