Jardine Cycle & Carriage Ltd (SGX: C07) has been one of the top performing blue-chip stocks in Singapore over the past decade, averaging 18% per year. But with its share price up considerably, is it still worth buying?
Here are three valuation metrics — the price-to-book ratio, price-to-earnings multiple and the sum of parts valuation that can help us determine if it is still cheap.
The price to book ratio compares the stock price to the book value per share. The book value of a company is the total value of its assets after deducting liabilities. In theory, the book value is what is returned to shareholders after the company is liquidated and all its creditors are paid.
A price-to-book ratio of below one suggests the company is trading at a discount to its book value. The table below shows Jardine Cycle & Carriage’s price-to-book ratio now at how it compares with its five-year average and index.
Source: Data from Morningstar
As you can see, at current prices, Jardine Cycle & Carriage sports a price-to-book that is above one and higher than the market. However, it trades at a discount to its five-year average price-to-book ratio.
The price-to-earnings multiple is a comparison between the company’s earnings and share price. The lower the multiple, the cheaper the share is relative to its earnings.
Source: Data from Morningstar
Based on its price-to-earnings multiple, Jardine Cycle & Carriage currently trades at a premium to both its five-year average and the index.
Sum of parts valuation
Finally, the sum of parts valuation is the value of a company obtained by adding up all the components of its business. Jardine Cycle & Carriage owns stakes in a few listed entities and has direct stakes in some privately-owned companies.
The listed entities include a (1) 50.1% stake in Indonesia-listed Astra International Tbk PT; (2) 25.5% stake in Thailand-listed Siam City Cement; (3) 23.9% stake in Refrigeration Electrical Engineering Corporation; (4) 44.4% stake in PT Tunas Ridean Tbk; and a (5) 59.1% stake in Cycle & Carriage Bintang Berhad.
The table below shows the current market prices of its major stakes in publicly-listed entities.
Source: Author’s computation of data from Google Finance
As you can see, the sum of parts valuation, excluding privately-owned enterprises, amounts to S$17.4 billion. After deducting net debt at the holding level of S$1.6 billion, we find that the sum of parts valuation of the conglomerate excluding privately-owned enterprises equates to S$15.8 billion. At its current price of S$36 per share, the conglomerate has a market cap of S$14.1 billion, which is an
19% 11% discount to the sum of parts valuation based on my calculation.
In theory, if Jardine Cycle & Carriage sells all of its positions in publicly-listed companies and pays off its creditors, shareholders can make an instant profit based on current share prices.
The Foolish bottom line
Putting all of this together, we can come to different conclusions on the current valuation of Jardine Cycle & Carriage’s share price. While the company trades at premium price-to-earnings multiple and price-to-book ratio compared to the index, the sum of parts valuations shows that the company is actually trading at a significant discount to the market value of its holdings.
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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 contributor Jeremy Chia does not own shares in any company mentioned.