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Is SATS Ltd A Bargain Now?

David Kuo
SATS Food

SATS Ltd (SGX: S58) is a Singapore-listed company with a market capitalisation of S$5.52 billion. As a quick background, SATS is the leading provider of gateway services and food solutions in the region.

It caters to the needs of the aviation sector and a host of other businesses in hospitality, food, healthcare, freight, and logistics industries besides governments. SATS can be seen almost everywhere at Singapore’s Changi Airport, where it manages most of the gateway services for airlines.

Between from 1 Jan to 31 Dec 2018, SAT’s total return, which includes reinvested dividends, underperformed the Straits Times Index (SGX: ^STI), with the former registering a negative 7.2% return, compared to a negative 6.5% return for the latter.

Has the pullback in SATS’ shares made it a bargain at current prices?

To decide we will use four metrics, namely, the price-to-earnings (P/E) ratio, the price-to-book (P/B) ratio, the dividend yield and the net-debt-to-equity ratio.

SATS has a trailing twelve months (TTM) earnings per share of S$0.23. At the current share price of S$4.91, the P/E ratio is 21.3, which is in line with its one-year historical PE ratio of 21.

Looking at the earnings per share between 2015 and 2018, (SAT’s fiscal year ends in March) gives a range of S$0.175 to S$0.232. This means that SAT’s TTM EPS is at the high end of its historical range.

At the end of the third quarter of 2018, SATS reported a Net Asset Value of S$1.44. At the current share price, this results in a P/B ratio of 3.41. Looking at its NAV over the past four years, we see a rising trend with NAV coming in at S$1.30 in FY2015 and S$1.46 in FY2018.

At the end of September 2018, SATS had a net debt of S$96.8 million and equity of S$1.6 billion, indicating a net-debt-to-equity-ratio of 0.06. This indicates that SATS is very conservative about taking on too much debt to fuel its growth. Looking at the debt to equity ratio for the past four years, it quickly becomes clear that SATS has consistently been conservative with a stable ratio of 0.07.

Lastly, SATS’ dividend has consistently increased over the last four years, moving up from S$0.14 in 2015 to S$0.18 in 2018. Assuming the company pays out a dividend at the same rate as 2018, this would imply a yield of 3.7% at current prices.

Looking at the four metrics, SATS seems to be attractively priced. Its EPS is at the top end of the range, NAV is rising, debt-to-equity is conservative, and the dividend payout has been increasing.

This suggests that SATS is worthy of further investigation.

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The Motley Fool Singapore writer Esjay contributed towards this article. Esjay owns shares in SATS. 

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 in SATS.