Keppel Corporation Limited (SGX: BN4) released its first-quarter earnings update for the year ending 31 December 2019. As a quick introduction, Keppel Corporation is a conglomerate with major business segments including offshore and marine, property, infrastructure, and investment.
At its current price of S$6.15 (at the time of writing), Keppel Corporation’ shares are trading at 20% below its 52-week high price of S$7.65. This raises a question: Is Keppel Corporation cheap now? This question is important because if the firm’s shares are cheap, it might be a good opportunity for investors to carry out further research on the company.
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Unfortunately, there is no easy answer. However, we can still get some insight by comparing Keppel Corporation’ current valuations with the market’s valuation. The three valuation metrics I will focus on are the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield. I will be using the 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).
Keppel Corporation currently has a PB ratio of 1.0, which is comparable to that of the SPDR STI ETF’s PB ratio of 1.0. On the other hand, its PE ratio is higher than that of the SPDR STI ETF’s (13.9 vs 11.2). Still, income investors might be enticed by the conglomerate’s dividend yield of 4.1%, which is higher than the market’s dividend yield of 3.6%. The higher a stock’s yield is, the lower its valuation.
In sum, we can argue that Keppel Corporation is priced reasonably as compared to the market average, since its high PE ratio is offset by its high dividend yield. In particular, income investors might be interested to take a deeper look at the company due to its high dividend yield.
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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.