Calculating The Fair Value Of Triad Group plc (LON:TRD)

As investors, we are constantly seeking to identify undervalued companies in the market. One such company that has caught our attention is Triad Group plc (LON:TRD), a UK-based provider of information technology resourcing, consultancy, and solutions services. In this article, we will explore the key financial metrics and valuation ratios that can help us determine the fair value of Triad Group plc.



Valuation Ratios

1. Price-to-Earnings (P/E) Ratio: Triad Group's P/E ratio is 79.51, which is significantly higher than the industry average of 17.3x. This suggests that the stock is expensive compared to its peers. However, it's essential to consider the company's growth prospects and earnings quality when interpreting this ratio.
2. Enterprise Value (EV) to Sales and EV to EBITDA: Triad Group's EV/Sales ratio is 3.23, and its EV/EBITDA ratio is 83.00. These ratios are higher than the industry averages, indicating that the company's valuation is relatively expensive based on its revenue and cash flow.
3. Price-to-Book (P/B) Ratio: Triad Group's P/B ratio is 16.46, which is higher than the industry average. This suggests that the company's stock price is high relative to its book value per share.

Financial Health

1. Current Ratio: Triad Group has a current ratio of 2.38, indicating that it has a strong ability to meet its short-term obligations. This is higher than the industry average, suggesting that the company is financially healthy.
2. Debt-to-Equity Ratio: Triad Group has a debt-to-equity ratio of 0.17, which is lower than the industry average. This indicates that the company has a low level of debt relative to its equity, suggesting strong financial health.
3. Interest Coverage Ratio: Triad Group has an interest coverage ratio of 9.67, which is higher than the industry average. This indicates that the company has a strong ability to cover its interest expenses.

Profitability

1. Return on Equity (ROE) and Return on Assets (ROA): Triad Group has an ROE of 20.93% and an ROA of 4.27%. These ratios are higher than the industry averages, suggesting that the company is profitable relative to its peers.
2. Profit Margin: Triad Group has a profit margin of 4.27%, which is lower than the industry average. However, it's essential to consider the company's growth prospects and the cyclical nature of its industry when interpreting this ratio.



Discounted Cash Flow (DCF) Analysis

To calculate the fair value of Triad Group plc, we can use a DCF model, which takes into account the company's future free cash flows, expected growth rates, and an appropriate discount rate. The discount rate should reflect the company's risk profile and the current market environment. In this case, a reasonable discount rate might be in the range of 7.5% to 12.5%, depending on the specific risk assessment and market conditions.

By incorporating Triad Group's earnings growth, profit margins, and other risk factors into the DCF model, investors can better understand the company's intrinsic value and make more informed investment decisions. However, it's crucial to remember that valuation is not an exact science, and there will always be some degree of uncertainty in any fair value estimate.

In conclusion, Triad Group plc (LON:TRD) is a company with a high P/E ratio, expensive EV/Sales and EV/EBITDA ratios, and a relatively low profit margin. While its financial health metrics are strong, investors should carefully consider the company's growth prospects, earnings quality, and the cyclical nature of its industry before making an investment decision. By using a DCF model and considering the appropriate discount rate, investors can better understand the company's fair value and make more informed investment decisions.