DBS Group Holdings Ltd (SGX: D05) is one of the world’s most recognised banks, with more than 280 branches across 18 markets. It is also an important component of the Straits Times Index (SGX: ^STI) — the bank occupies around 16% of the Singapore stock market benchmark.
As of the time of writing, DBS shares are changing hands at S$24.24 apiece, after having hit an intraday low of S$24.16.
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The D05 share price is fast approaching S$24, a level last seen in December 2017. This begs the question: Is DBS a buy at this price? There isn’t a simple answer, but we can make some smart guesses from looking at a few things.
Net asset value growth
The net asset value (NAV) is the difference between a company’s assets and its liabilities. It also shows the company’s net worth. By looking at a bank’s net worth over the years, we can see how much the bank’s capital has grown. Over the long-term, a bank’s share price tends to rise in line with its capital growth.
DBS had a NAV per share of S$13.61 in 2013. The figure has grown consistently each year to reach S$17.85 in 2017. Therefore, the bank’s net worth has climbed at a rate of 7.0% annually.
DBS has been the dream of income investors due to its steady dividend payout. Its dividend has climbed by a respectable 12.5% annually, from S$0.58 per share in 2013 to S$0.93 per share in 2017 (excluding the special dividend of S$0.50 per share given in 2017).
In DBS’s 2017 fourth-quarter earnings update, it gave some insights into its dividend:
“It also determined that ordinary dividends can be sustained at higher levels and affirmed the policy of increasing them over time in line with earnings growth.”
In the second-quarter of 2018, DBS increased its interim dividend by a whopping 82% to S$0.60 per share from S$0.33 per share a year ago.
The following is a snapshot of DBS’ valuations from 2013 to 2017:Source: DBS 2017 annual report
Over the past five years, the dividend yield (excluding special dividends) of DBS ranged from 3.1% to 4.5%, with an average of 3.7%. The PE ratio had fluctuated between 9.3 and 12.3, giving an average of 11.1. As for the PB ratio, it had bounced from 0.9 to 1.2, translating to an average of 1.1.
At a share price of S$24, DBS would have a dividend yield (again excluding special dividends) of 5%, a PE ratio of 12.4, and a PB ratio of 1.36.
The Foolish bottom line
At a hypothetical share price of S$24, it looks like DBS would be overvalued in relation to history, given its higher-than-average PE and PB ratios. However, the bank has shown that it can deliver strong growth in its net worth and dividend — in particular, its dividend has increased by 20% annually over the last five years. Therefore, it might be fine to pay up for growth with a long-term view.
Having said that, there are macroeconomic headwinds that investors have to face with DBS. Those who fear escalating trade and political tensions could pace out their stock purchases to take advantage of any further price falls.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of DBS Group Holdings Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.