SEMBCORP INDUSTRIES-FAIR VALUE ESTIMATION

View previous topic View next topic Go down

SEMBCORP INDUSTRIES-FAIR VALUE ESTIMATION

Post by Admin on Wed Apr 19, 2017 1:57 pm


About 2 months back, I recommended to those investors who preferred to invest in sg stocks to consider Sembcorp Industries even though its price no longer trading at or below my ideal entry price of SGD2.58. There is a rationale for my recommendation which i did not mentioned because i felt that it is not relevant. However since i had shared about using cashflow method to value M1, i think must well i bring out to everyone attention.

Once again, i refer to the cashflow formula of NAV+stream of future cashflow discounted to present value. When we look at the Sembcorp table below, we will notice that from 1999-2016, Sembcorp's NAV increased by 352% from SGD0.73 to SGD3.30, simple interest accounted to about 20% return per year, this is incredibly good. Meaning if someone were to buy Sembcorp share at SGD0.73 (at NAV) in 1999, its NAV growth alone already more than thrible its capital. Of cos no one can go back to the future, however for those who had missed it in 1999, today you are given another chance to buy Sembcorp Industries at or below its NAV (SGD3.30).

Although Sembcorp's share price had risen above my ideal entry price, purchase at current price will still GUARANTEE profit given time. Reason being is what we are paying currently is only for its NAV, we are not paying for its cashflow. Hence an investor will be able to profit its gain once Sembcorp cashflow return to uptrend which ultimately follow by its share price. From the table, we can see that Sembcorp experience twice negative cashflow within the past 18 years and both were during crisis. After 2001 negative cashflow, the following year 2002, Sembcorp cashflow rebounded back strongly. The recent negative cashflow began in 2014 and ballooned in 2015, nevertheless with the breakeven done in 2016, it is highly likely that the worst period of negative cashflow was over for the company. Going forward, i'm projecting a cashflow per share of SGD0.15, when we discount at the current interest rate of about 2.2%, we will get a present value cashflow per share at SGD1.33, together with its NAV of SGD3.30, its intrinsic value would be at SGD4.63.

However as interest rates are expected to rise further and i'm projecting one to two years for Sembcorp to gain the aforesaid cashflow per share, assuming 2 more rate hikes for this year and 3 more for next year with each at 0.25%, interest rate may go up to 3.45% by end of next year and if we discount using it we will receive a present value cashflow per share at SGD1.25 instead of the current SGD1.33 estimation. This will change the intrinsic value to SGD4.55. Of cos, the NAV per share of SGD3.30 is also likely to increase in the year of 2017 and 2018, when that happen it will sum up to a higher intrinsic value too.

For those who visit i13, you will notice that most analysts gave a target price of SGD3 plus. It is because they are using the latest earning for the tabulation. If we refer to 2016 cashflow per share at SGD0.01 and discount it with the present interest rate we will get a present value cashflow per share at SGD0.09 and when added with its NAV of SGD3.30, its intrinsic value is SGD3.39. Likewise if you were to use its current earning for PE compilation, you will also get a SGD3 plus fair value. Thus my fair value is higher because i'm projecting a turnaround which had happened in the past as shown from the statistic table.

When we applied value investing to aide our investment decision, we will know what is going on when we look at a company operating history. A value investor will know the price which he paid is used for what purchase and what will be the value in return. Unlike for someone to buy or sell based on chart reading that give no basis for their transaction. When we know the rationale of buying and selling a stock, we will not be easily influence by daily news and price movement. Our focus will be on the earning and cashflow of the company itself. Thus anyone who bought Sembcorp at current price, his forcus will be on its cashflow and he will monitor from its quarterly result and not the daily share price.

For those who are wary of negative cashflow, it is very normal for a company to have negative operating cashflow especially for industrial companies. Negative cashflow doesnt mean that the company is not doing well, it simply mean that the process of collecting its earning is slower than paying its supplier and this can occur during recession or slow growth period. Once the economic outlook recover, the collection process will improve too. Thus going forward, it is highly possible that Sembcorp's cashflow will turn around, those who are keen do consider. Thank you....




Admin
Admin

Posts : 18
Join date : 2017-04-09

View user profile http://investorsanddonors.666forum.com

Back to top Go down

View previous topic View next topic Back to top

- Similar topics

 
Permissions in this forum:
You cannot reply to topics in this forum