Sembcorp Industries Limited (SGX: U96) is a Singapore-listed conglomerate with three business divisions – Utilities (Energy, Water, Waste Management), Marine (a 61% ownership of Sembcorp Marine Ltd (SGX: S51)) and Urban Development.
Between 1 Jan to 31 Dec 2018, Sembcorp’s total return, which includes reinvested dividends, came in at a negative 15%, compared to a negative 6.5% for the Straits Times Index (SGX: ^STI).
With the sharp pullback in Sembcorp’s shares, is Sembcorp Industries a bargain?
For this we will be using four metrics, namely, the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the dividend yield and the net-debt-to-equity ratio.
Sembcorp Industries has a trailing twelve months (TTM) earnings per share of S$0.12. With the industrial conglomerate’s current share price standing at S$2.65, this implies a P/E ratio of 22.1.
Apart from looking at the P/E, we could also look at Sembcorp’s earnings per share (EPS) over time to get an accurate picture about how the company is doing. The last four years (2014-2017) have seen Sembcorp’s EPS range from S$0.11 to S$0.44. So, Sembcorp’s TTM is closer to the bottom of range.
At the end of the third quarter of 2018, Sembcorp reported a Net Asset Value of S$3.83 per share. At the current share price, this results in a P/B ratio of 0.69. This means that the shares are at a 31% to the assets owned by Sembcorp. That’s a pretty good deal.
Looking at Sembcorp’s historical NAV, a rising increasing trend can be seen over the past four years with NAV moving up from S$3.15 to S$3.90 from 2014 to 2017. However, in the most recently ended quarter, there was a slight dip.
At the end of September 2018, the industrial conglomerate had net debt of S$8.8 billion and equity of S$6.8 billion, indicating a net debt to equity ratio of 127%. Consequently, Sembcorp is highly leveraged – it has more debt than equity.
Lastly, SembCorp’s dividend has taken a beating over the last four years, falling from S$016 per share in 2014 to S$0.05 per share in 2017. Assuming the company pays out a dividend at the same rate as 2017 this would lead to a yield of 1.9% at current prices.
Looking at the four metrics, it seems like Sembcorp might not be much of a bargain at current prices due to its low TTM EPS, high net debt to equity position, decreasing dividends and lower NAV.
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The Motley Fool Singapore writer Esjay contributed towards this article. Esjay does not own shares in Sembcorp Industries.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.