Express Catering Limited Equity Analysis

To value ECL, a P/E valuation approach was used. We firstly forecasted the company’s 1-year expected earning and arrived at an EPS of approximately J$0.22 for 12 months ended November 2022. Investors should note that the forecasted EPS is still below pre-Covid levels where ECL’s EPS in 2019 was approximate J$0.35. Key assumptions used in this forecast include a continuation of the revenue growth (%) that the company has reported in recent quarters, particularly as the tourism sector rebounds. Our projections also take into consideration the company’s increased cost of sales resulting from supply chain disruptions.

To determine a benchmark multiple, we’ve used the Junior Market average P/E which was less than the Company’s average historical 2-year P/E pre-Covid. The average PE multiple of the junior marketwas 21.97x at the time of this writing. Applying this multiple to the forecasted EPS we arrive at a fair value of J$4.82.

Given the significance of the supply chain pressures, and rising interest rates, a fundamental valuation of ECL demonstrates that at present, the Company’s ROE is insufficient relative to its cost of equity, resulting in meaningless valuation results. This, coupled with the fact that the Company has not paid dividends since FY2020 highlights the relevance of the P/E multiple approach.

Characteristic of the decline in the business’ profitability and clear net losses in several quarters, the trailing P/E as at March 24, 2022, was 331.58x. The rebound effect of the stock would typically warrant positive investor sentiment. However, the most recent quarter suggests supply chain issues are significant, more so than the improvement in revenue from the strengthening of the tourism industry. Hence, the Company reported a loss in Q2 2022, despite the market’s expectation of robust rebound, on the back of improvements in tourism. Our 1-year net profit estimate which is below pre-pandemic (FY2019) levels by 37.5% but above FY2020 levels by 49.2%, suggests that even at a relatively elevated multiple of 21.97x, the Company trades above what is justified based on our one year forecast. This, coupled with the meaningful deterioration in profitability underscores our current UNDERWEIGHT recommendation.