Valuation & Recommendation
To arrive at a price target for 138SL, we employed a discounted cash flow model along with a Justified P/E approach. We forecasted the income statement and free cash flow to equity for the next five financial years with the assumption of a fully subscribed APO with no option of upsizing. Due to the uncertainty around the exact timing of the expansion of room capacity, we assumed that in the 5-year forecast period, there would be no construction of the prospective additional 842 rooms.
The cost of equity was determined by using the capital asset pricing model (CAPM), resulting in an outturn of 13.58% along with a terminal growth rate of 5% in line with the BOJ’s ultimate inflation target. In discounting the free cash flow by the Cost of Equity, the DCF model produced a valuation of $5.00.
Our estimate for the 2024 Financial year EPS amounted to $0.75, assuming 928.4 million shares outstanding following a fully
subscribed APO. We then determined a justified P/E ratio of 6.12x, resulting in a price target of $4.58. Averaging the DCF target with the Justified P/E target resulted in a price target of $4.79, this compares to the closing price of $4.32 on September 22, 2023, representing a potential upside of 12.17%.
The Company currently trades at a trailing P/E multiple of 5.12x, below the average of 10.10x for other real estate companies listed on the Main Market of the Jamaica Stock Exchange. Considering the above, we assigned a MARKETWEIGHT recommendation to the stock, representative of an allocation of up to 5% of a diversified stock portfolio.
| Stock | 138 SL |
|---|---|
| Last Closing Price | J$4.32 |
| 52 Week High | J$7.00 |
| 52 Week Low | J$3.95 |
| YTD Return | -J$13.60 |
| Target Price | J$4.79 |
| Potential Return | 10.83% |
| Trailing P/E | 5.12x |
| Trailing P/B | 0.84x |
| Forward P/E | 5.77x |
| Dividend Yield (TTM) | 1.34% |
| Total Projected Return | 12.17% |
| Recommendation | MARKETWEIGHT |
138 Student Living Jamaica Limited | Equity Analysis
