Back in July 2013, I wrote a piece about CAP Plc and placed a ‘Sell” rating on the stock. Then the price was about N51. A year later and the stock is averaging N39 per share and still way off my initial value price of N12 per share. Looking back, I still feel the share price was over valued even if the N12 valuation was quite low and unrealistic at the time. So based on new information, I want to give it a shot again since it’s a stock I want in my portfolio but can’t get at this price.
When you want to buy a stock there are certain parameters you probably check. What then determines how much you price you feel is right for will depend on a number of other factors that is unique to you. So lets look at that of CAP Plc;
- P.E Ratio – CAP Plc currently trades at about N41 and that gives it a P.E ratio, based on its 2013 earnings, of 20x. I like P.E ratios of no more than 15x.
- Forecasted P.E Ratio – This is a variation of the P.E ratio and rather than use the current earnings per share I will substitute with this year’s projected earnings per share. CAP from my calculation EPS grows at an annual CAGR of 18%. This gives me an adjusted forecasted P.E of 16x
- P.E.G Ratio – The PEG ratio helps you check if the P.E ratio is in line with the company’s earnings growth. Currently the P.E.G ratio is 1.09. Anything less than 1x is looks like a buy.
- Dividend Yield – This refers to the company’s current dividend over its current price which is actually not static. Currently it is a paltry 2.5%
- Growth Rate of Share price – The share price has returned 12% as at time of writing having opened at N48. But it’s five year compounded average growth rate tells me 28% annually. In fact, it has risen 239% from when it was N12 5 years ago.
Other factors to consider
- Market – Will CAP continue to be dominant in the paints and chemical sector?
- Board & Management Team – They have a sound management team led by Mrs Omolara Elemide who was once a Finance Director in the company. She was seconded from UAC
- Debt Status – Presently it is debt free so lets hope they continue to remain so
- Dulux Franchise – This is their premier brand and a lot of what they do depends on how strong and relevant this brand continues to be.
- Massive building construction expected to take place in Nigeria. This will be a huge opportunity for the company if they make the right moves and not just rely on their synergy with UACN.
Buy Sell or Hold?
Based on the above metrics, the stock is a BUY for me but not just yet. So, I will patiently wait till it gets to my preferred entry price based on the metrics below.
Preferred Price – N30- N35 based on future expected earnings growth
Buy trigger – Buy less than N40
It hurts to know this stock was within my buy territory just last week.
So what do you think? Am I missing something?