Valuation
To obtain a target price for Tropical Battery, we employed two methods. These were the Discounted Cash Flow and a P/E valuation. We firstly forecasted the company’s income statement and arrived at a 1-year EPS of $0.14.
For our comparative analysis, we used companies that were listed on the junior market of the Jamaican Stock Exchange, whose businesses are centered primarily around distribution. Using these companies, we obtained an average P/E multiple of 22.21x. This tracks very closely to the Company’s trailing multiple of 21.99x. Using this multiple alongside the projected EPS of $0.14 we obtained a fair value estimate of $3.05. We also note that even at a multiple of 18.00x, the Company would still trade at 18.31% above its present price and above our cost of equity as indicated below.
To complement the relative PE valuation, we then employed a Discount Cash Flow model
of five years, the assumptions that guided this model included a cost of equity of 14% and
a long-term growth rate of 6.46%. Using these assumptions, we arrived at a fair estimate value of $2.95.
Using a simple average of the two fair value estimates we arrived at a price target of $3.00 which represents a potential upside of 40.85%.
Given the Company’s recent outsized growth, our positive outlook on its near-term and long-term potential, and the supporting valuation, we are recommending an OVERWEIGHT for Tropical Battery’s stock.
| Stock | TROPICAL |
|---|---|
| Close Price | J$2.13 |
| Estimated Fair Value | J$3.00 |
| Potential Upside | 40.85% |
| Dividend Yield | 0.78% |
| Total Return | 41.63% |
| YTD Return | 69.05% |
| Trailing P/E | 21.99x |
| Forward P/E | 15.53x |
| Recommendation | OVERWEIGHT |
March 16, 2022
Full Equity Analysis
