Valuation Summary
In order to ascertain a target price for CCC, 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 manufacturing sector averages. In arriving at our target price based on the justified P/E approach, we forecasted the earnings of CCC, incorporating flat revenue growth due to the reduced demand observed for construction materials amidst a tighter economic backdrop. Additionally, significantly higher input costs and compressed margins were forecast based on the trend of higher costs of sales seen in the group’s past few quarters. Our target EPS for 2023, as a result, was J$4.20 compared to the current J$4.80 on a trailing basis and J$6.33 for FY 2022.
We used the capital asset pricing model (CAPM) to arrive at a discount rate for CCC of 13.25% and assumed a long-term growth rate of 6.32%, giving us a justified P/E ratio of 14.42x. We applied this multiple to our 2023 EPS target to arrive at a valuation of J$60.04. Additionally, we assigned the main market’s manufacturing sector average P/E of 14.16 times to the forward estimates for CCC’s earnings arriving at a target price of J$56.34. Using the simple average of the two results gave us a target price of J$58.46 and at the last closing price of J$55.78, this represents a potential upside of 4.80%. As a result, we have assigned a MARKETWEIGHT recommendation for CCC.
| Stock | CCC |
|---|---|
| Last Closing Price | J$55.78 |
| 52 Week High | J$74.00 |
| 52 Week Low | J$45.10 |
| YTD Return | -7.77% |
| Target Price | J$58.46 |
| Potential Gain | 4.80% |
| Trailing P/E | 11.63x |
| Trailing P/B | 2.34x |
| Forward P/E | 13.28x |
| Dividend Yield (TTM) | 2.69% |
| Total Return | 7.50% |
| Recommendation | MARKETWEIGHT |
as at June 6, 2023
Caribbean Cement Company | Equity Analysis
