Bumitama Agri Ltd. (SGX: P8Z) is a palm oil producer. The company has over 180,000 hectares of plantation land located in three provinces in Indonesia, namely Central Kalimantan, West Kalimantan, and Riau.
Recently, the stock has tanked by 23% from its 52-week high price of S$0.74, mainly driven by challenges in the palm oil industry. On one hand, the current weak crude palm oil price means Bumitama’s performance in the near future will not be very exciting.
Yet, the company is currently a trading at an attractive valuation. Here are two ways to look at it.
One way to look at valuation is to compare a company’s current valuation to its historical one. Let’s consider two simple metrics: the price-to-book (P/B) ratio and the price-to-earnings (P/E) ratio.
According to Morningstar.com, Bumitama’s shares have traded at P/B multiples roughly between 1.5 and 2.8 times over the last five years. Presently, it has a P/B ratio of 1.3 times, which is even lower than the lowest end of the spectrum! Moreover, its trailing P/E ratio of 11.4 times is also on the lower end of the 5-year range of around 9 to 15 times.
Clearly, the company is trading cheaply compared to its historical metrics.
High dividend yield
Another reason Bumitama’s stock is cheap now is its high dividend yield — 4.2% as of this writing. This compares favourably to the market’s dividend yield of 3.8%. Here, I use the SPDR STI ETF (SGX: ES3) as a proxy for the market; it’s an exchange-traded fund that tracks the fundamentals of Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI).
What’s more, Bumitama’s current dividend yield of 4.2% is way higher than the average for the last five years of 2.7%. This might entice dividend investors to give the company a closer look.
The Foolish bottom line
Bumitama is trading at an attractive valuation now, amid industry headwinds. Yet, for enterprising investors, this might be a great time to put the company on your research list.
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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.
Motley Fool Singapore 2019