United Overseas Bank Ltd (SGX: U11) or UOB, is one of the three main local banks listed in Singapore.
The company’s stocks are currently out of favor among investors. At its current price of S$25.50 (at the time of writing), UOB’s shares are down by 16% from its peak of S$ 30.37 in the last 12 months.
Though the market is not in favor of the company now, there are still good reasons for long term investors to consider UOB as an investment candidate. Here’s three of them.
We discussed the first two reasons in an article here. As a quick recap, those reasons were:
- Proven financial track record
- Conservative capital adequacy ratio
In this article, we will continue with the final reason.
No investment analysis is ever complete unless we consider the valuation of the company. Here, even good company might turn out to be a “bad” investment if investors overpay for it.
The good news is that the UOB share price seems to be trading at an attractive valuation now. Let’s consider some numbers here.
At S$ 25.50, UOB is trading at price to book ratio, price to earnings ratio and a dividend yield of 1.2 times, 11.1 times and 3.7%, respectively. Comparatively, the market average’s book ratio, price to earnings and dividend yield were at 1.1 times, 11.3 times and 3.6%. Here, we are using 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).
From the above, we can see that UOB is trading at an attractive valuation now due to its low price to earnings ratio and high dividend yield as compared to the market average, offset partially by its high price to book ratio.
In sum, UOB is a good candidate for long term investors to consider due to its proven financial track record, conservative capital policy, and attractive 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. Motley Fool has a recommendation for United Overseas Bank Ltd