Valuation and Recommendation
To arrive at a fair value estimate for the company we utilized two methods, namely a Justified Price-to-Book method and a Justified Price-to-Earnings method. In arriving at our estimate for earnings, we assumed the intentional increase in inventory levels is successfully able to overcome the company’s supply logistics and supply chain issues and some contributions to profits from the company’s acquisition, improving on the Q1 2023 performance for a slight growth in revenues and profits in FY 2023. Using these assumptions, we arrived at a base case earnings per share (EPS) for the 2023 Financial Year end of $0.15 which compares to the 2022 EPS of $0.14. We then arrived at a justified P/E of 17.26x, using a discount rate of 14.43% and paired with a growth rate of 8.63%. Based on this justified P/E, of which we applied to our 2023 EPS forecast, we arrived at a fair value price of $2.63. Our Price to Book Valuation utilized a justified P/B of 2.10x, along with our 2023 financial year-end expected book value of $0.94. This resulted in a valuation of $1.98. Averaging our P/E and P/B estimates, we arrived at a price target of $2.30, a 19.12% upside to the April 18, 2023, price of $1.93, suggesting the stock is undervalued. In light of this fair value estimate and expected financial performance going forward, we recommend investors OVERWEIGHT the stock.
| Stock | Tropical |
|---|---|
| Current Price | $1.93 |
| Estimate Fair Value | J$2.30 |
| YTD Return | -11.76% |
| Target Price | $J 25.06 |
| Trailing P\E | 13.60x |
| Forward P/E | 12.71x |
| Dividend Yield (TTM) | 1.03% |
| Potential Upside | 19.12% |
| Total Return | 20.15% |
| Recommendation | OVERWEIGHT |
as at April 19, 2023
Tropical Battery Company Limited | Equity Analysis
