Calculating The Intrinsic Value Of The Straits Trading Company Limited (SGX:S20)

Simply Wall St.04-09

Key Insights The projected fair value for Straits Trading is S$1.28 based on Dividend Discount Model With S$1.44 share price, Straits Trading appears to be trading close to its estimated fair ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCalculating The Intrinsic Value Of The Straits Trading Company Limited (SGX:S20)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-09 12:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/calculating-intrinsic-value-straits-trading-045553822.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n The projected fair value for Straits Trading is S$1.28 based on Dividend Discount Model \n With S$1.44 share price, Straits Trading appears to be trading close to its estimated fair ...</p>\n\n<a href=\"https://finance.yahoo.com/news/calculating-intrinsic-value-straits-trading-045553822.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK6507","symbol_name":"矿产资源股","start_time":0,"source_url":"https://finance.yahoo.com/news/calculating-intrinsic-value-straits-trading-045553822.html","article_id":"2426180485","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/hHa1.rnFIozE8uk1FxFmIg--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/7a92075e7c274cfc915511d1e9d413e3"],"rights":{"source":"yahoofinance_sg","url":"https://finance.yahoo.com/news/calculating-intrinsic-value-straits-trading-045553822.html","rn_cache_url":null,"customStyle":"","selectors":"article, body","filters":"","directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2426180485","pubTimestamp":1712638553,"sourceInfo":{"source_id":"yahoofinance_sg","name":"Yahoo Finance"},"weMediaInfo":null,"summary":"The projected fair value for Straits Trading is S$1.28 based on Dividend Discount Model. With S$1.44 share price, Straits Trading appears to be trading close to its estimated fair value. Industry average of 552% suggests Straits Trading's peers are currently trading at a higher premium to fair value. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Straits Trading as potential shareholders, the cost of equity is used","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK6507":"矿产资源股","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK6078":"多种金属与采矿","S20.SI":"海峡贸易有限公司.","BK4213":"石油与天然气的勘探与生产","GDP":"古德里奇"},"translate_title":"海峡商贸股份有限公司（新交所：S20）内在价值的计算","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"GDP":1,"S20.SI":0.9},"content_text":"Key Insights\n\n The projected fair value for Straits Trading is S$1.28 based on Dividend Discount Model \n With S$1.44 share price, Straits Trading appears to be trading close to its estimated fair value \n Industry average of 552% suggests Straits Trading's peers are currently trading at a higher premium to fair value \n\n Today we'll do a simple run through of a valuation method used to estimate the attractiveness of The Straits Trading Company Limited (SGX:S20) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Believe it or not, it's not too difficult to follow, as you'll see from our example! \n We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. \n See our latest analysis for Straits Trading \n Crunching The Numbers \n We have to calculate the value of Straits Trading slightly differently to other stocks because it is a metals and mining company. In this approach dividends per share (DPS) are used, as free cash flow is difficult to estimate and often not reported by analysts. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (2.1%). The expected dividend per share is then discounted to today's value at a cost of equity of 8.3%. Relative to the current share price of S$1.4, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \nValue Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)\n= S$0.08 / (8.3% – 2.1%)\n= S$1.3\n\n\n\n  SGX:S20 Discounted Cash Flow April 9th 2024\n \n\n Important Assumptions \n Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Straits Trading as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.3%, which is based on a levered beta of 1.355. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Straits Trading\n\n\nStrength\n\n No major strengths identified for S20.\n\n\n\nWeakness\n\nInterest payments on debt are not well covered.\n\n\nDividend is low compared to the top 25% of dividend payers in the Metals and Mining market.\n\n\nCurrent share price is above our estimate of fair value.\n\n\n\nOpportunity\n\nHas sufficient cash runway for more than 3 years based on current free cash flows.\n\n\nLack of analyst coverage makes it difficult to determine S20's earnings prospects.\n\n\nHave S20 insiders been buying lately?\n\n\n\nThreat\n\nDebt is not well covered by operating cash flow.\n\n\nDividends are not covered by cash flow.\n\n\nIs S20 well equipped to handle threats?\n\n\n\n Next Steps: \n Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Straits Trading, we've compiled three further items you should further research: \n\n Risks: As an example, we've found 2 warning signs for Straits Trading that you need to consider before investing here. \n Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \n Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! \n\n PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SGX every day. If you want to find the calculation for other stocks just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426180485"}