Valuation
In order to ascertain a target price for KW, we used a justified Price to Earnings approach applied to forward financial expectations for the company, as well as a relative P/E ratio valuation based on main market averages. In arriving at our target price based on the justified P/E approach, we forecasted the earnings of KW, incorporating slower revenue growth due to the projections made by S&P and the World Trade Organization for reduced global logistics and shipping activity through 2023. Additionally, our projection includes the cost of sales increasing at a slightly slower pace relative to revenues due to softening input costs expected through 2023 and higher finance costs due to J$661 million worth of debt maturing in FY 2023, that will likely need to be refinanced at higher rates given that the company maintains a consistent level of cash on hand. Our target EPS for 2023, as a result, was J$1.94 compared to the current J$1.88 for FY 2022.
We used the capital asset pricing model (CAPM) to arrive at a discount rate for KW of 13.54% and assumed a long-term growth rate of 5.53%, giving us a justified P/E ratio of 12.48x. We applied this multiple to our 2023 EPS target to arrive at a valuation of J$24.07. Additionally, we assigned the main market’s average P/E of 13.5 times to the forward estimates for KW’s earnings arriving at a target price of J$26.22. Using the simple average of the two results gave us a target price of J$25.06 and at the last closing price of J$30.56, this represents a potential downside of 17.99%. As a result, we have assigned an UNDERWEIGHT recommendation for KW, in line with the expectations of stifled growth due to macro conditions.
| Stock | KW |
|---|---|
| Last Closing Price | J$30.56 |
| 52 Week High | J$44.00 |
| 52 Week Low | J$27.15 |
| YTD | -9.10% |
| Target Price | $J 25.06 |
| Potential Return | -17.99% |
| Trailing P\E | 16.22x |
| Trailing P\B | 1.21x |
| Forward P/E | 15.84x |
| Dividend Yield (TTM) | 2.00% |
| Total Return | -15.99% |
| Recommendation | UNDERWEIGHT |
as at April 13, 2023
Kingston Wharves Limited | Equity Analysis
