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Semirara Mining and Power Corporation (SCC) Extended Graph Analysis

December 4th, 2019 Posted by Extended Analysis No Comment yet

About the Company

SCC

Semirara Mining and Power Corporation started as a Semirara Coal Corporation and transformed into a Philippine power industry committed in providing affordable and reliable electricity to the country. The Founding Chairman is David M. Consunji. 

Incorporated in the Philippines on February 26, 1980 with exclusive rights to explore, extract and develop the coal resources in Semirara Island, Antique Province, the right remains to this day. SCC is vertically integrated coal-fired power plants in the country. 

Semirara Mining and Power Corporation became a publicly traded company in 1983 under the Philippine Stock Exchange with the ticker symbol SCC. The company is headquartered in 3rd Floor Dacon Building, 2281 Chino Roces Avenue Extension, Makati City, Philippines.

 

Semirara Mining and Power Corporation (SCC) Extended Graph Analysis

 

1. SCC CASH FLOWS

SCC CASH FLOWS

2014 2015 2016 2017 2018 2019
Net cash provided by operating activities 11,925,643,441 10,683,869,034 16,420,476,772 18,206,968,085 9,503,158,826 18,846,489,534
Net cash used for investing activities -10,671,263,716 -5,115,627,968 -6,689,482,960 -7,281,852,466 -8,572,237,935 -8,802,225,466
Net cash provided by (used for) financing activities -2,388,159,045 -4,467,782,858 -7,316,857,789 -9,440,375,645 -7,489,807,103 -7,038,035,424
Capital expenditure -10,739,495,786 -5,036,739,075 -7,242,108,616 -6,324,077,517 -9,539,112,245 -9,780,999,781
Free cash flow 1,186,147,655 5,647,129,959 9,178,368,156 11,882,890,568 -35,953,419 9,065,489,753

Facts:

  • Cash from operating activities were Php 18.846 billion in 2019.
  • Net cash used for investing activities were Php -8.802 billion in 2019.
  • Net cash provided by (used for) financing activities were -7 billion in 2019.
  • Capital expenditures were Php -9.781 billion in 2019.
  • Free cash flow was Php 9 billion in 2019.

Explanation

  • Cash from operating activities although erratic in movement had a growth of 58 percent in five years.
  • Cash from investing activities were investment in property, plant and equipment; and purchases of intangibles.
  • Net cash provided by financing activities were debt issued, debt repayment and dividend paid.
  • Capital expenditure was investment in property, plant and equipment.
  • Free cash flow increases year-over-year except in 2018 where it suffered negative due to changes in working capital.

Interpretation

The company has an acceptable free cash flow, although suffered negative it increased from Php-36 million to Php 9 billion from 2018 to 2019. The company has efficiently managed to generate cash from operations in the last five years.

 

2. SCC BALANCE SHEET

SCC BALANCE SHEET

2014 2015 2016 2017 2018 2019
Total cash 3,683,125,544 5,205,842,396 7,114,141,283 8,521,640,371 1,954,063,676 1,954,063,676
Current assets 12,772,627,810 15,092,708,536 21,154,329,852 24,333,646,377 25,739,222,770 25,739,222,770
Net property, plant and equipment 36,366,478,374 39,758,121,302 43,352,166,628 43,014,048,021 43,519,724,033 43,519,724,033
Non-current assets 39,128,747,884 42,064,328,709 44,606,146,650 44,262,759,312 45,309,715,454 45,309,715,454
Total assets 51,901,375,694 57,157,037,245 65,760,476,502 68,596,405,689 71,048,938,224 71,048,938,224
Short-term debt 3,332,638,748 8,183,728,394 3,431,583,887 3,555,960,317 10,426,073,925 10,426,073,925
Current liabilities 12,138,201,589 15,555,721,715 15,652,536,957 14,407,272,446 20,372,103,747 20,372,103,747
Long-term debt 16,088,724,435 11,359,881,203 13,258,162,966 14,468,517,855 10,042,954,442 10,042,954,442
Total liabilities 29,195,164,178 30,255,955,086 31,474,165,253 30,917,026,549 31,116,251,620 31,116,251,620
Stockholders’ equity 22,706,211,516 26,901,082,159 34,286,311,249 37,679,379,140 39,932,686,604 39,932,686,604

Facts:

  • Cash was Php 2 billion in 2019.
  • Current assets were Php 25.7 billion in 2019.
  • Net property, plant and equipment was Php 43.5 billion in 2019.
  • Non-current assets were Php 45 billion in 2019.
  • Total assets were Php 71 billion in 2019.
  • Short-term debt was Php 10 billion in 2019.
  • Current liabilities were Php 20 billion in 2019.
  • Long-term debt was Php 10 billion in 2019.
  • Total liabilities were Php 31 billion in 2019.
  • Stockholders equity was Php 40 billion in 2019.

Explanation

  • Total cash was erratic in movement in the last five years and has a negative growth in five years. It fell 77 percent in one year from 2017 to 2018.
  • Cash represents 8 percent of current assets.
  • Current assets have doubled in five years. It represents 36 percent of total assets.
  • Property, Plant and equipment had increased 20 percent in five years. It represents 96 percent of non-current assets.
  • Non-current assets represents 64 percent of total assets.
  • Total assets increases year-over-year and has a growth of 37 percent in five years.
  • Short-term debt represents 51 percent of current liabilities.
  • Current liabilities represents 65 percent of total liabilities.
  • Long-term debt represents 32 percent of total liabilities.
  • Total liabilities was 44 percent of total liabilities and equity.
  • Total equity represents 56 percent of total liabilities and shareholders equity.

Interpretation

The company’s balance sheet shows that the management is efficient in running its business operation year-over-year. Further, it shows its growing in the last five years. And has sufficient current assets to pay current obligations in due time. 

 

3. SCC INCOME AND MARKET

SCC INCOME AND MARKET

2014 2015 2016 2017 2018 2019
Sales 28,585,341,089 24,680,171,579 36,584,375,140 43,943,489,219 41,968,512,823 45,234,431,331
EBIT 6,559,565,972 9,899,091,968 13,009,730,429 15,738,076,298 13,554,916,247 11,629,313,377
Net Income 6,861,294,479 8,486,909,081 12,040,669,988 14,209,139,819 12,025,381,058 11,608,835,822
Market Capitalization 151,763,000,000 145,884,000,000 138,529,000,000 156,710,000,000 97,975,000,000 99,250,000,000
Intrinsic Value 116,785,324,423 138,626,168,139 136,759,304,573 173,053,868,169 116,632,959,353 130,497,083,292
EBITDA 8,560,350,354 11,644,990,348 17,110,448,223 22,671,652,962 21,406,861,156 19,509,179,548

Facts:

  • Sales were Php 45 billion in 2019.
  • EBIT was Php 11.629 billion in 2019.
  • Net income was Php 11.609 billion in 2019.
  • Market capitalization was Php 99.250 billion in 2019.
  • Intrinsic value was Php 130.487 billion in 2019.
  • EBITDA was Php 19.56 billion in 2019.

Explanation

  • Sales has a growth of 58 percent in five years and it grows year-over-year.
  • EBIT growth was 77 percent in five years.
  • Net income growth was 69 percent in five years.
  • Market capitalization decreased by 35 percent from 2014, it decreases year after year from 2014 to 2018, in 2019 it began to increased by 1.30 percent..
  • Intrinsic value was erratic in movement in the last five years, further, IV is greater by 31 percent against market value.
  • EBITDA growth was 128 percent in five years.

Interpretation

The net income of SCC represents 26 percent of Sales which is impressive, it never suffered a negative bottomline in the last five years. The management has managed to generate sufficient and increasing sales on its operations. SCC is profitable.

 

4. SCC FINANCIAL RATIOS

SCC FINANCIAL RATIOS

2014 2015 2016 2017 2018 2019
Asset Turnover (average) 0.59 0.45 0.60 0.65 0.60 0.64
Return on Asset (ROA) % 14.20 15.56 19.59 21.15 17.22 16.50
Return on Equity (ROE) % 32.04 34.22 39.36 39.49 30.99 27.70
Financial Leverage (average) 2.29 2.12 1.91 1.82 1.78 1.72
Return on Invested Capital % 17.73 19.44 25.36 27.35 21.61 19.23
Interest Coverage 24.56 42.33 25.51 25.29 15.70 0.00
Earnings per Share Php 1.60 1.99 2.82 3.33 2.83 2.73

Facts:

  • Asset turnover was averaging 0.64 in 2019.
  • Return on assets was 16.5 percent in 2019.
  • Return on Equity was 27.70 percent in 2019.
  • Financial leverage was averaging 1.72 in 2019.
  • Return on invested capital was 19.23 percent.
  • Interest coverage was 15.70 in 2018.
  • Earnings per share was 2.73 in 2019.

Explanation

  • Asset turnover tells us that for every peso invested in assets the company generate 64 centavos of sales.
  • Return on assets indicates that for every peso in assets, the company generates 16.5 centavos of net income.
  • Return on equity tells us that every peso that was invested in equity it generates 27.7 centavos of net income.
  • Financial leverage indicates that for every peso in equity the company had Php 1.72 in total assets, Php 0.72 was borrowed.
  • Return on invested capital tells us that 19.23 percent is the return that the company makes over its invested capital.
  • Interest coverage tells us that SCC is able to make interest payments on its current obligations in due time.
  • Earnings per share means that if SCC distributed every peso of net income to its shareholders, each of their shares will receive Php 2.73.

Interpretation

Overall view of financial ratios indicates that the SCC is profitable.

 

5. SCC KEY OFFICERS

LIST OF KEY OFFICERS

NAME TITLE
Isidro A. Consunji CEO, Chairman of the Board
Maria Cristina C. Gotanum President, COO, Chief Risk Officer
Junalina S. Tabor CFO, Vice President
Jaime B. Garcia VP, Procurement and Logistics
Nena D. Arenas VP, Chief Governance Officer, Compliance Officer
Atty. John R. Sadullo VP, Legal Corporate Secretary, Corporate Information Officer
Antonio R. Delos Santos VP, Treasurer
Jose Antonio T. Villanueva VP, Marketing for Coal
Andreo O. Estrellado VP, Power Market and Commercial Operation
Ruben P. Lozada VP, Mining Operations, Resident Manager
Carla Cristina T. Levina VP, Chief Audit Executive
Jojo L. Tandoc VP, Human Resources and Organization Development
Kamine Andrea B. San Juan Assistant VP, Corporate Planning for Power

Explanation

  • Isidro A. Consunji is a BS Civil Engineering, University of the Philippines, Master’s Degree in Business Economics, Center for Research & Communication, Business Management, Asian Institute of Management, Advance Management from IESE School, Barcelona, Spain. 
  •  Maria Cristina C. Gotianun – BS Business Economics, University of the Philippines, Majored in Spanish, Instituto de Cultura Hispanica, Madrid, Spain
  • Jorge A. Consunji – BS Industrial Management, Engineering, La Salle University.
  • Cesar A. Buenaventura – Bachelor of Science in Civil Engineering as a Fulbright Scholar, Lehigh University, Bethlehem, Pennsylvania 
  • Herbert M. Consunji – Bachelor of Science in Commerce Major in Accounting, De La Salle University.
  • Ma. Edwina C. Laperal – BS Architecture, University of the Philippines, Masters Degree in Administration, University of the Philippines
  • Josefa Consuelo C. Reyes – AB Economics, University of British Columbia, Vancouver, Canada. Strategic Business Economics Program University of Asia and the Pacific.
  • Luz Consuelo A. Consunji – Bachelor’s Degree in Commerce Major in Management, Assumption College; Masters Degree in Business Economics, University of Asia and the Pacific.
  • Rogelio M. Murga – BS Mechanical Engineering, University of the Philippines; Senior Management Program, Harvard Business School, Vevey, Switzerland; Honorary Degree of Doctor of Science – Honors Causa, FEATI University.
  • Honorio O. Reyes-Lao – Bachelors of Arts Major in Economics, De La Salle University; Masters Degree in Business Management, Asian Institute of Management.
  • Antonio Jose U. Periquet – MBA, Darden Graduate School of Business Masters Degree in Economics, Oxford University, Bachelor’s Degree in Economics, Ateneo de Manila University.

 

6. SCC LOBBYING AND CONTRIBUTIONS

SEARCHED:

OpenSecret.org     The LOBBYIST

Result:

 

No Politicians or Lobbyists Found

 

 

7. SCC FINANCIAL STRENGTH

SCC FINANCIAL STRENGTH

DATA

PhP
Working capital 5,367,000,000
Total assets 71,048,938,224
Sales 45,234,431,331
EBIT 11,629,313,377
Market value of equity 99,250,000,000
Book value of total liabilities 31,116,251,620
Retained earnings 20,468,072,403

CALCULATION:

Ratio Score Result
A – Working Capital / Total Assets 0.08 1.20 0.09
B – Retained Earnings / Total Assets 0.29 1.40 0.40
C – EBIT / Total Assets 0.16 3.30 0.54
D – Market Value of Equity / Book Value of Total Liabilities 3.19 0.60 1.91
E – Sales / Total Assets 0.64 1.0 0.64
Z-Score     3.58

 

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Explanation

Z-Score is a statistical measurement that compare data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

SCC has a Z-Score of 3.58. Dr. Altman’s grading scale of 3.0 and above indicates that the company will not declare bankruptcy. In other terms, the company is not close to insolvency. The main factors of this statistical measurement is the profitability, liquidity, leverage and efficiency.

 

CITATION

http://www.semiraramining.com/our_organization

https://www.opensecrets.org/search?q=Semirara+Mining+and+Power+Corp+SCC&type=indiv&__cf_chl_captcha_tk__=a00a32188a7f3f85f65452c421f7a694ce5249e0-1575258353-0-ATFtgwWRMeDvt4iMyEHln_cmUthyzcEwWakDM8CDWFAjnNJG8KO3g6Yaw3rSIVpxFgyMhJ–rRfewraXaenfBeE2dU82-napg4-yJybfimHrTRE3A3ZHas9hNcdpdQBNVRm5xEVdT_fXaBJuatWzwQfz-7fFllcCEzFjBR-ose_2rAR4yRUF6bY9kbiYEVm6zRLRjfa18O3HCW_yZqFXe79BvIXifojvt2tnGyahP7ySG9HljRu-jA6OYvZSjl9S0JUCvEZf7ZQYMvB77F54hdshRamoCkb3FFdKDMIlxtxkDZbm_1ORWkppCrt-Ie6mJdLDbA6Bq4ObUu52z4PuDMdEt-Ufi7bIPnsIbRA24eFCOCkuPAyw-iAxqy6r2TEM_xknvqfXWZWoCIxzyYPAHfooY7RAYkkR_qJFr7-VgEq6xBFRhnveinLwcTee4NyFGg

 

Researched and written by Criselda

Twitter: criseldarome

 

Investment Valuation On Safe Bulkers Inc (SB)

April 12th, 2013 Posted by Investment Valuation No Comment yet

Safe Bulkers Inc (SB) is an international provider of marine dry bulk transportation services transporting bulk cargoes like coal, grain, and iron ore globally. Dry Bulk Shipping deliveries continue to increase at the expected pace, a possibility of positive earnings this year is also expected.

SB logo

Value Investing Approach on Safe Bulkers Inc 

This Pricing Model was prepared in a very simple and easy way to value a company for business valuation. This model adopted the investment style of Benjamin Graham, the father of Value Investing.

In essence Graham’s Value Investing is to purchase a stock at a discount in which the market price is lower than the intrinsic value.  He was looking for companies with a good balance sheet with average debt. In other words, he was looking for undervalued stock.

The basis for this valuation is the company’s five years historical financial records, the balance sheet, income statement and cash flow statement. We calculated first the enterprise value as our first step in the valuation. I consider this important because this is a great measure of the total value of a firm and is often great starting points for negotiation of a business.

The Investment in Enterprise Value  

The concept of enterprise value is to arrive at a cost to purchase the entire business. In other words, the Enterprise Value (EV) is the present value of the entire company. Market capitalization, on the other hand, is the total value of the company’s equity shares. In essence, EV is the company’s theoretical takeover price, since the buyer would have to buy all of the stock and pay off existing debt and take all any remaining cash. The table below would give us relevant data about SB.

The markeSB EVt capitalization continues to drop by 27 and 39 percent from 2010 up to 2012, respectively. Its total debt was 59 percent while its cash and cash equivalent were 8 percent, thus, enterprise value was greater by 51 percent against market capitalization. Buying the entire business of Safe Bulkers Inc., an investor would be paying 51 percent debt and 49 percent equity. In addition, the net cash per share was $2.30 per share.

The purchase price of the entire business of SB to date April 10, 2013, would be $894.5 million at $11.93 per share. While the market price to date was $4.99 per share.

Benjamin Graham’s Stock Test         

Net Current Asset Value (NCAV) Approach  

Benjamin Graham created and tested the net current asset value (NCAV) approach between 1930 and 1932. The average return, over a 30-year period, on diversified portfolios of net current asset stocks was about 20 percent. An outside study also showed that from 1970 to 1983, an investor could have earned an average return of 29.4 percent by purchasing stocks that fulfilled Graham’s requirement and holding them for one year.

Net Current Asset Value (NCAV) Method 

Benjamin Graham’s Net Current Asset Value (NCAV) method is well-known value investing community.  Studies have all shown that the Net Current Asset Value (NCAV) method of selecting stocks has outperformed the market significantly. The concept of this method is to identify stocks trading at a discount to the company’s Net Current Asset Value per Share, specifically two-thirds or 66 percent of net current asset value.

Graham was looking for firms trading so cheap that there was little danger of falling further.  His strategy calls for selling when a firm’s share price trades up to its net current asset value. The reason for this according to Graham is when a stock is trading below the Net Current Asset Value Per Share, they are essentially trading below the company’s liquidation value and therefore, the stock was trading at a bargain, and it is worth buying.

SB NCAVPS

The net current approach of Benjamin Graham tells us that the stock price of Safe Bulkers Inc was overvalued from the period 2008 up to 2012 because the stock is trading above the liquidation value of SB. It shows that the stock of SB did not pass the stock test of Benjamin Graham, therefore the stock was considered expensive.

Market Capitalization/Net Current Asset Value (MC/NCAV) Valuation  

By calculating market capitalization over the net current asset value of the company, we will know if the stock is trading over or undervalued. The result should be less than 1.2 ratios. Graham will only buy if the ratio does not exceed 1.2 ratios.

Market Capitalization / NCAV = Result (must be lesser than 1.2)    
SB MC NCAV

As clearly seen in the table above, the MC/NCAV approach shows that the stock was overvalued from the period 2008 up to the period 2012 because the ratios exceeded the 1.2 ratios. Therefore, the stock of Safe Bulkers Inc did not pass the stock test of Benjamin Graham.

Benjamin Graham’s Margin of Safety (MOS)        

The basic meaning of “Margin of Safety” is that investors should purchase a security when the market price is lesser that its intrinsic value. The margin of safety is used to identify the difference between company value and price. Value investing is based on the assumption that two values are attached to all companies – the market price and the company’s business value or true value. Graham called it the intrinsic value. The difference between the two values is called the margin of safety.  This is the concept taught by Benjamin Graham and still referred to by Warren Buffett.  Value investing is buying with a sufficient margin of safety, a minimum of 40 to 50 percent below. In the formula below, the enterprise value was used because it takes into account the balance sheet so it is a much more accurate measure of the company’s true market value than market capitalization.

The margin of safety was calculated through Margin of Safety = Enterprise Value – Intrinsic Value.

SB MOS

The average margin of safety for SB’s stock was 67 percent. During 2008, there was zero margin of safety because of negative sustainable growth rate. However, the following periods from 2009 up to 2012, the margin of safety was impressive. Let me share with you the formula for the intrinsic value.

Intrinsic Value = Current Earnings x (9 + 2 x Sustainable Growth Rate)       

The explanation in the calculation of intrinsic value was as follows:

EPS or the company’s last 12-month earnings per share; G as the company’s long-term (five years) sustainable growth estimate, 9 for the constant represents the appropriate P-E ratio for a no-growth company as proposed by Graham (Graham  proposed an 8.5, but we changed it to 9); and 2 for the average yield of high-grade corporate bonds.

SB IV

The table above shows that the average intrinsic value was -$9.48 because during the period 2008, the fall of the true value of the stock of SB was great. This is due to the negative stockholders equity which produces a negative return on equity. The earnings per share and the growth factor the computation for the intrinsic value.

The average earnings per share were $1.90 while the annual growth rate was 16.92 percent average. The term earnings per share (EPS) represents the portion of a company’s earnings, net of taxes and preferred stock dividends, that is allocated to each share of common stock. The figure can be calculated by simply dividing net income earned in a given reporting period by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used.   The formula for earning per share was:

     EPS

Sustainable growth rate (SGR), on the side note, shows how fast a company can grow using internally generated assets without issuing additional debt or equity. You need to know how profitable the company is as measured by its return on equity (ROE) to calculate the sustainable growth rate. You also need to know what percentage of a company’s earnings per share is paid out in dividends, which is called the dividend payout ratio. From there, multiply the company’s ROE, which is equal to 1 minus the dividend payout ratio. Sustainable growth rate = ROE x (1 – dividend-payout ratio)

  SB SGR

The table above shows that the average return on equity was -13.15 percent from the period 2008.

Return on Equity (ROE), according to the definition, is an indicator of company’s profitability by measuring how much profit the company generates with the money invested by common stock owners. It is also known as Return on Net Worth. Return on Equity shows how many dollars of earnings result from each dollar of equity. The formula for this is:

ROE

Moving forward, I will present to you a graph which I have prepared to help us understand very well the relationship of the price and the true value of the stock,

SB Graph

As we can see, the enterprise value line which represents the price was stable at $14 average, while the intrinsic value which is the true value of the stock was erratic in movement. The true value of the stock factors the earnings of the company and the growth. From 2008 to 2009, it soared up to 177 percent and then it dropped again to 86 percent the following period. It almost leveled the following years thereafter.

The margin of safety is the space in between these two lines, or in other words, it is the difference between the price and the true value of the stock. Getting the difference would be 67 percent average and this is the margin of safety.

Relative Valuation Methods    

The relative valuation methods for valuing a stock is to compare market values of the stock with the fundamentals (earnings, book value, growth multiples, cash flow, and other metrics) of the stock.

Price to Earnings/Earning Per Share (P/E*EPS)   

This valuation will determine whether the stock is undervalued or overvalued. We can do that by multiplying the Price to Earning (P/E) ratio with the company’s relative Earning per Share (EPS) and comparing it to the enterprise value per share.

SB PE EPS

The P/E*EPS valuation indicate that the stock price of Safe Bulkers Inc was overvalued from the period 2008 up to 2012 because the P/E*EPS ratio was lesser than the enterprise value per share. The average P/E*EPS ratio was 49 percent of the price, thus, the stock is expensive.

The Enterprise value (EV)/Earning Per Share (EPS) or (EV/EPS)       

The use of this ratio is to separate price and earnings in the enterprise value. By dividing the enterprise value of projected earnings (EPS), the result will then represents the price (P/E) and the difference represents the earnings (EPS).  If the analysts think that the appropriate ratio is greater or lower than the result, then the stock is either over or undervalued.

SB EV EPS

The above table for EV/EPS valuation indicates that the price (P/E) that was separated from the enterprise value per share was 57 percent average. Earnings (EPS), on the other hand, was 43 percent average. The result of this valuation is at the discretion of the analyst; whether the ratio was appropriate or not, therefore it is either over or undervalued.

Enterprise Value (EV)/ Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) or (EV/EBITDA).  

This metric is used in estimating business valuation. It compares the value of the company inclusive of debt and other liabilities to the actual cash earnings exclusive of non-cash expenses. It is useful for analyzing and comparing profitability between companies and industries. It gives us an idea of how long it would take the earnings of the company to pay off the price of buying the entire business, including debt. 

SB EV EBITDA

The EV/EBITDA valuation tells us that it will take 27 years to cover the cost of buying the entire business of Safe Bulkers Inc. Such a very long period of waiting. In other words, it will take 27 times of the cash earnings of the company to cover the purchase price of the entire business.

This valuation also shows the profitability of the company. If you can remember the enterprise value approach, the total debt represents 59 percent of the enterprise value. That was the reason why it will take a long period of waiting to cover the costs. The EBITDA represents only 6 percent of the enterprise value.

Bottom Line 

The market capitalization continues to drop by 27 and 39 percent from 2010 up to 2012, respectively. Its total debt was 59 percent while its cash and cash equivalent were 8 percent, thus, enterprise value was greater by 51 percent against market capitalization. Buying the entire business of Safe Bulkers Inc., an investor would be paying 51 percent debt and 49 percent equity. In addition, the net cash per share was $2.30 per share.

The purchase price of the entire business of SB to date April 10, 2013, would be $894.5 million at $11.93 per share. While the market price to date was $4.99 per share.

Further, the net current approach of Benjamin Graham tells us that the stock price of Safe Bulkers Inc was overvalued from the period 2008 up to 2012 because the stock is trading above the liquidation value of SB. Therefore, the stock did not pass the stock test of Benjamin Graham. Furthermore, the MC/NCAV approach shows that the stock price was overvalued because the ratios exceeded the 1.2 ratios.

The average margin of safety for SB’s stock was 67 percent and the average intrinsic value was -$9.48. The average earnings per share were $1.90 while the annual growth rate was 16.92 percent average, in addition, the average return on equity was -13.15 percent.

Furthermore, the P/E*EPS valuation indicate that the stock price of Safe Bulkers Inc was overvalued from the period 2008 up to 2012 because the P/E*EPS ratio was lesser than the enterprise value per share. The average P/E*EPS ratio was 49 percent of the price, thus, the stock is expensive. While the EV/EPS valuation indicate that the price (P/E) that was separated from the enterprise value per share was 57 percent average while the earnings (EPS) was 43 percent average.

The EV/EBITDA valuation tells us that it will take 27 years to cover the cost of buying the entire business of Safe Bulkers Inc. That is considered as a very long period of waiting.  In other words, it will take 27 times of the cash earnings of the company to cover the purchase price of the entire business.

Overview, it shows that the stock price was overvalued, and the EV/EBITDA was not impressive, therefore I recommend a HOLD on the stock of Safe Bulkers Inc,

Research and written by Cris
Twitter: criseldarome

Note:

Research Reports can be found under the company tab.