Sunday, 19 July 2015

Stock Analysis : Keppel Corporation

Keppel Corporation is an Industrial Conglomerates dealing with Marine, Property, Infrastructure, and Investment. In FY2014, the Offshore & Marine Division was the largest contributor to Group net profit with a 55% share followed by the Property Division at 26%, the Infrastructure Division at 17% and the Investments Division at 2%. You can read their FY2014 annual report here. Their top 5 shareholders are :

1) Temasek Holdings (Private) Limited
2) Aberdeen Asset Management PLC
3) BlackRock, Inc.
4) BNP Paribas Securities Corp, Asset Management Arm
5) The Vanguard Group, Inc

Impressive owners, isn't it?

Let us take a quick look at the key ratios:

1) P/E = 7.863
2) Market Cap = S$14,861.1 mm
Rest of the key ratios : Click Here

If you take a look at SGX listed companies, there are less than 100 companies with P/E less than Keppel Corporation and none of them have anything near 30% of his market capitalisation. What this means? Company with such a sizeable model is selling at undervalued price. You can see that there is no significant dilution in earnings per share because no major capital call was made since 1997.

Revenue are increasing year-on-year, free cash flow is $729mm, dividends is at 5.13% (as of closing price of 16 July 2015/FY2014 dividends) and current ratio is 1.586. This means that the company is having sufficient cash flow, ability to service their debts and having a very good dividends payout for a blue chip company at this size.

Risk will be the increasing year-on-year average days of inventory to 414 days. This either means that they have more inventories and they are taking longer to sell them. However, it should not be a major concern as the revenues are increasing.

The 52 weeks price ranges are $7.91 - $11.15 and the current price is $8.15. The 200 days moving average is at $8.75. So, it is still a good entry price.

Overall, Keppel Corporation's financial presented investors with great value. So why are people avoiding this stock?

The answer is in the oil price:

As you can see, 55% of Keppel Corporation's business is with Offshore and Marine. There are sufficient contract for the companies to work on for the next 2 years. However, no body know what will happen in the long term on oil prices. Should we gamble on oil prices future trend?

Another possible solution for Keppel Corporation long-term sustainability and growth will be increasing their revenues from other businesses such as property, Infrastructure, and Investment.

I believe this giant will not fall. However, I will observe and weight my options before considering this stock.

What about you?

Frugal Daddy

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