Valuation and Recommendation
To obtain a value for GraceKennedy, we employed two methods. These were the Price-to-Earnings Valuation (P/E) and the Dividend Discount Model (DDM). We firstly forecasted the company’s income statement and arrived at a 2023 Year End EPS of $7.80. For our comparative analysis, we used companies that were listed on the main market whose business model is centered around operating as a conglomerate. Using these companies, we obtained an average P/E multiple of ~11.19x. Using the projected 2023 YE EPS of $7.80 we obtained a fair value estimate of $87.33. To complement our relative P/E valuation we then utilized a Two Stage-Dividend Discount Model. The assumptions that guided our model included a cost of equity of 11.04% and a long-term growth rate of 7.88%, determined using the Company’s 2-year ROE and Retention Ratio. Using these assumptions, we obtained a fair value estimate of $84.71. Using a simple average of the two fair value estimates we obtained a price target of $86.02, which represents a potential upside of 7.61% to the April 27, 2023 closing price of $79.93, and a total return of 10.14% when factoring the company’s dividend yield. In consideration of our estimated fair value along with the above stated in the document, we have assigned a MARKETWEIGHT recommendation.
| Stock | GK |
|---|---|
| Current Price | J$79.93 |
| Estimate Fair Value | J$86.02 |
| YTD Return | -3.95% |
| Trailing P/E | 11.27x |
| Forward P/E | 10.24x |
| Dividend Yield | $2.53% |
| Potential Upside | 7.61% |
| Total Return Recommendation | MARKETWEIGHT |
as at April 27, 2023
Grace Kennedy Limited | Equity Analysis
