For these past few days, I have been really inactive in my investing. Spent my time reading and writing more (or stoning infront of the laptop watching Youtube). Work has been busy. I want to spend more time with family.
Occasionally some readers’ comments would prompt me to write a blog post. However, most of the time, I can’t seem to find any company that interests me. The news nowadays seem to be dominated by Greece / Eurozone crisis and China stock market plunge.
Came across Spindex Industries Ltd some time back in Value Buddies forum. Financially, it is quite impressive. Unfortunately, its share price has been reaching new highs recently. A lost cause? Was too lazy to research on it in the past (after all there are good companies whose stock prices are hitting 52 weeks low). Am going to slowly write this post. :p
Spindex is a highly integrated solution provider of precision machined components and assemblies with manufacturing locations in Singapore, Malaysia, China and Vietnam. There is an excellent article written by a blogger (read here).
Their growth was underpinned by higher levels of business activities in both the Imaging and Printing (IP) and Machinery and Automotive Systems (MA) business sectors.
Their revenue base has led to the incorporation of 70% owned Spindex Energy Services Pte Ltd in December 2013. According to the Chairman, through this subsidiary, the Group will be able to tap the oil and gas industry for long term business opportunities by leveraging on their competitive strengths in precision engineering.
Performance wise: sales, profit, turnover, EPS and asset per share have been increasing year after year.
I think the The Value Investing Almanack blog post (read here) has sufficiently introduced the company. What I am wondering is at its current ‘high’ price, is it still worth having a second look at the stock?
Let’s do a quick study on Spindex Industries Ltd’s share price of SGD$0.6350 (as of 26 June 2015) – via Trailing PEG and Intrinsic Value.
1) Trailing PEG
- P/E: 7.85 (from POEMS)
- Dividend Yield (%): 3.49 (from POEMS)
- 5 years EPS compound growth rate: 15.06 (from ft.com – see below)
The trailing PEG will be 7.85/(3.49+15.06) = 0.42. Which is good (< 1).
2) Intrinsic Value
If we calculate the intrinsic value using a growth rate of 12.05% (20% less than 5 years CAGR of 15.06%).
F = P(1+R)N
- F = the future EPS
- P = the starting (present) EPS (SGD 0.09)
- R = compound growth rate, 12.05%
- N = number of years in the future (5)
Estimated future EPS: 0.16
I will be estimating the future PE of Spindex Industries Ltd to be 7.05. (See below, data from Morningstar) Average of the P/Es from 2005 to 2014.
Future Stock Price
- P = future stock price
- EPS = future EPS
- PE = future PE
Hence future stock price of Spindex Industries Ltd is 0.16 x 7.05 = SGD 1.128
- P = present (intrinsic) value
- F = future stock price (1.128)
- R = MARR (15% or 0.15)
- N = Number of years (5)
Hence intrinsic value of Spindex Industries Ltd is SGD 0.56.
The stock price of Spindex Industries Ltd on 3 July 2015 is 0.63 which is higher than the estimated intrinsic value. Hence there is really no margin of safety at all.
Well have to wait for the chance to grab this share in the future. It is no wonder a couple of people commented in Value Buddies that they are slowly off-loading the shares of this company.
This company has a long history of good performance. Nevertheless, I felt that the below items warrant some thoughts / concern:
- A lot depends on management capabilities;
- It has exposure to the oil and gas sector;
- Derive 41.52% of its turnover from China, while 21.68% of its turnover from Europe, US and others. China’s economy is slowing. Europe & US is only starting to recover at a very slow pace.
- Lack of strong business moat / competitive advantage.
Although the trailing PEG shows that current share price is undervalued, the calculated intrinsic value shows otherwise.
Consequently, given that the current share price is pricey, I would be hesitant in buying the shares of this company.