Valuation & Recommendation
To obtain a value for GraceKennedy, we employed two methods. These were the Discounted Dividend Model (DDM) and P/E Valuation. We firstly forecasted the company’s income statement and arrived at a 1-year EPS of $10.99.
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 11.03x. This tracks below the Company’s trailing P/E of 12.57x. Using the projected EPS of $10.99 we obtained a fair value estimate of $121.28.
To complement our relative P/E valuation, we then employed a Dividend
Discount Model of three years. The assumptions that guided our model
included a cost of equity of 12.24% and a long-term growth rate of 9.95%, determined using the Company’s average ROE and Retention Ratio over the past 2 years. Using these assumptions, we obtained a fair value estimate of $102.53. Using a simple average of the two fair value estimates we obtained a price target of $111.90 which represents a potential upside of 9.61%. In consideration of our estimated fair value which is lower than the cost of equity along with the aforementioned discussion, we have assigned a MARKETWEIGHT recommendation.
| Stock | Grace Kennedy |
|---|---|
| Close Price | J$102.09 |
| Estimated Fair Value | J$111.90 |
| YTD Return | 2.07% |
| Trailing P/E | 12.34x |
| Forward PE | 9.29x |
| Dividend Yield | 1.91% |
| Potential Upside | 9.61% |
| Total Return | 11.52% |
| Recommendation | MARKETWEIGHT |
March 30, 2022
Full Equity Analysis
