Valuation and Recommendation
To arrive at our price target for SCI, a Justified Price to Earnings (P/E) Model was used. Our estimate for the 2023 Financial yearend EPS, considering the recovery of earnings as a result of the contribution of the Puerto Rico Credit Fund as well as a lower impairment charge given the charge-off of one portfolio company in the prior year-end, amounted to $1.36. To arrive at a discount rate, we utilized the capital asset pricing model (CAPM), which resulted in an outturn of 11.41%. The long-term growth rate was estimated at 2.00%, in line with the Federal Reserve’s long-term inflation target, which we believe to be conservative for a US dollar-denominated operation of this nature. Using these inputs, a justified P/E ratio of 10.63x was derived, resulting in a price target of $14.50, representing a 23.88% upside from the last closing price of $12.02. The company currently trades at a trailing P/E multiple of 10.93x, below the average of 15.59x for other financial stocks listed on the Jamaica Stock Exchange. In conclusion, based on its current market price along with our target EPS produces a forward P/E of 8.81x. Given the factors above, we recommend investors OVERWEIGHT SCI in their portfolio.
| Stock | SCIJMD |
|---|---|
| Last Closing Price | J$12.02 |
| 52 Week High | $J16.81 |
| 52 Week Low | J$11.82 |
| YTD Return | -5.13% |
| Target Price | J$14.50 |
| Potential Return | 20.63% |
| Trailing P/E | 10.93x |
| Trailing P/B | 0.68x |
| Forward P/E | 8.81x |
| Dividend Yield (TTM) | 3.25% |
| Total Projected Return | 23.88% |
| Recommendation | OVERWEIGHT |
as at March 10, 2023
Sygnus Credit Investments Limited | Equity Analysis
