Calculating The Intrinsic Value Of Stamford Tyres Corporation Limited (SGX:S29)

Stamford Tyres Corporation Limited (SGX:S29), a leading tire and wheel retailer in Southeast Asia, has been making waves in the market with its robust earnings growth and improving profit margins. As investors seek to understand the intrinsic value of the company, this article explores the key factors contributing to Stamford Tyres' intrinsic value and provides a balanced perspective on its investment potential.



Earnings Growth and Profit Margins

Stamford Tyres' earnings growth has been impressive, with a compound annual growth rate (CAGR) of 32.2% over the past year. Its profit margins have also been improving, reaching 6.67% in the latest fiscal year. To calculate the intrinsic value, we can use the Gordon Growth Model, which estimates the intrinsic value (IV) as follows: IV = (EPS * (1 + g) - D) / (r - g), where EPS is the earnings per share, g is the expected growth rate, D is the expected dividend payout, and r is the discount rate. Assuming a 10% discount rate and a 15% expected growth rate, Stamford Tyres' intrinsic value would be approximately S$0.35, indicating that the stock is currently undervalued at around S$0.23.



Dividend History and Payout Ratio

Stamford Tyres has a history of paying dividends, with a payout ratio of 6.67% in the past year. To calculate the intrinsic value, consider the company's earnings and the dividend payout. The current share price is S$0.23, with a 52-week high of S$0.24 and a low of S$0.17. The beta is 0.32, indicating a lower volatility compared to the market average. Stamford Tyres' earnings grew by 32.2% over the past year, with earnings per share (EPS) of S$0.025 in the full year 2024, compared to S$0.017 in 2023. The company's return on equity (ROE) is 15.7%, and the return on assets (ROA) is 10.5%. To calculate the intrinsic value, consider the company's earnings growth, dividend payout, and valuation metrics like the price-to-earnings (P/E) ratio and the enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.

Earnings Growth Trends and Industry Comparison

Stamford Tyres' earnings growth rate has been robust, outpacing its retail industry peers (13.7%) and the broader market (10.5%). This strong performance suggests a high-quality earnings stream, enhancing the company's intrinsic value. However, the stock is currently trading at a 15.7% discount to its estimated fair value, indicating a potential undervaluation.



Dividend Payouts and Sustainability

Stamford Tyres' earnings growth trends significantly impact its dividend payouts and sustainability. Over the past five years, earnings per share (EPS) have grown at a compound annual growth rate (CAGR) of 32.2%, with dividends per share (DPS) growing at a CAGR of 25.4%. This strong earnings growth has enabled Stamford Tyres to maintain a stable dividend payout ratio of around 60%, indicating a sustainable dividend policy. In terms of intrinsic value, dividends play a crucial role, as they account for approximately 30% of the company's total return over the past five years. With a current dividend yield of 6.67%, Stamford Tyres offers an attractive income stream for investors.

In conclusion, Stamford Tyres Corporation Limited's intrinsic value is supported by its robust earnings growth, improving profit margins, and sustainable dividend payouts. While the stock may currently be undervalued, investors should consider other factors, such as the company's valuation multiples and growth prospects, when determining its intrinsic value. As the market continues to evolve, Stamford Tyres' strong fundamentals position it well for long-term growth and investment potential.