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Is Dairy Farm International A Bargain?

David Kuo

Dairy Farm International Holdings Ltd (SGX: D01) owns the following businesses – Cold Storage, Giant, Guardian and 7-Eleven in Singapore. In short, the company operates supermarkets, hypermarkets, health and beauty, convenience, home furnishings stores, and restaurants.

Since 1 Jan to 31 Dec 2018, Dairy Farms’ total return, with dividends reinvested, has come in at 18.1%, easily beating the performance by the Straits Times Index (SGX: ^STI) that saw a decline of 6.5%.

With the outperformance in Dairy Farm’s share price, is the company still a bargain?

To find out we will be using three metrics, namely, its price-to-earnings (P/E) ratio, its dividend yield and its net-debt-to-equity ratio.

The consumer conglomerate is currently trading at US$9.48 and has a trailing twelve months (TTM) earnings per share (EPS) of US$0.31. This implies a P/E ratio of 30.6. Over the last three years (2015 to 2017), its EPS has been between US$0.30 to US$0.35. This indicates that the current TTM EPS is within the three-year range.

Dairy Farm had a net debt position of US$670 million, while equity stood at US$1.66 billion. Its net-debt-to-equity ratio is 40%. Over the past four years (2015-2017), Dairy Farm’s the ratio has been between 35% to 43%. So, its net-debt-to-equity position is on the higher end of its historical range.

Lastly, the Dairy Farm’s dividend has increased slightly over the last three years, moving from US$0.20 in 2015 to US$0.21 in 2017. Assuming the company pays out a dividend at the same rate as 2017, then this would imply a yield of 2.2%.

Looking at the three metrics, Dairy Farm’s share price seems to be at the more expensive end. The TTM EPS is at the lower end of the range, while the net-debt-to-equity is at the higher end and dividend growth has been measly.

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The Motley Fool writer, Esjay, contributed towards this article. Esjay does not own shares in Dairy Farm International.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo owns shares dairy Farm International.