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Stock Valuation: Adani Power Ltd (533096)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
ADANI POWER LTD India/
BOM
Utilities – Utilities – Independent Power Producers – Utilities – Independent Power Producers INR19.85
@ 15 Jul 2018
COMPANY PROFILE Adani Power Ltd together with its subsidiaries generates and transmits power. The Company has five power projects with a combined installed and commissioned capacity of 10480 MW.

Adani Power Ltd is an electric utility company that produces and transmits energy from its portfolio of power plants located throughout India. The company produces most of its energy using thermal fuel sources, such as coal, but also owns facilities that utilize solar and steam generation. Adani Power generates the vast majority of its revenue through the sale of electricity to state distribution companies and the transmission of energy to state and central utilities. Most of the company’s electricity sales are structured through long-term agreements. Adani Power is the largest private power producer in India, owns the world’s largest private coal-based power plant, and is a part of the conglomerate that is India’s largest importer of coal.

Stock Code 533096
Stock Valuation Below

Adani Power Price to Sales

The Price to Sales Ratio is a commonly used valuation indicator for a stock. While not as popular as the Price to Earnings Ratio, it overcomes some of the limitations of the PE Ratio in that it can be used even when the company is not making a profit or only making minimal profits. However, it should not be used by itself because a company may be achieving sales but not profits.
At the price of INR19.85 as at 15 Jul 2018, Adani Power Ltd is trading at a Price to Sales Ratio of 0.4 times last 12 months sales.  This is a 38.0% discount to its historical average Price to Sales Ratio of 0.6 times.
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

Stock Valuation: South32 Ltd (S32)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
SOUTH32 LTD Australia/
ASX
Basic Materials – Metals & Mining – Industrial Metals & Minerals AUD3.63
@ 15 Jul 2018
COMPANY PROFILE South32 Ltd is a metals and mining company. It has a portfolio of assets producing alumina, coal, manganese, nickel, silver, lead and zinc. The business activity is functioned through the region of Australia, South America, and Southern Africa.

South32 was born of the demerger of noncore assets from BHP Billiton in 2015. South32 comprises BHP Billiton’s former aluminium and manganese businesses and the South African energy coal and New South Wales metallurgical coal businesses. It also owns the Cannington silver/lead/zinc mine in northwest Queensland and the Cerro Matoso nickel mine in Colombia. Cannington silver mine and manganese operations deliver high returns but have relatively short reserve life.

Stock Code S32
Stock Valuation Below

South32 Price to Cash Flow

Price to Cash Flow is an alternative method to value shares. This is because accounting profits can be subject to manipulation. Therefore, some investors prefer to value a company based on cash flows generated by the operating activities of the company. It also acts as a reality check to valuation measures such as Price to Earnings and Price to Sales. If a company generates high profits and sales but not operating cash flows, it could be heading for trouble because it is cash that pays the operating expenses. However, the Price to Cash Flow ratio of most firms are volatile and should not be used in isolation to determine the valuation of the stock.
At the price of AUD3.63 as at 15 Jul 2018, South32 Ltd is trading at a Price to Cash Flow Ratio of 8.1 times last 12 months cash flow.  This is a 25.0% premium to its historical average Price to Cash Flow Ratio of 6.5 times.
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

Stock Valuation & Dividend Analysis: BT Group Plc (BT A)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
BT GROUP PLC UK/
LSE
Communication Services – Communication Services – Telecom Services GBP2.22
@ 15 Jul 2018
COMPANY PROFILE BT Group PLC is a provider of telecommunications networks and services. It sells fixed-voice, broadband, mobile and TV products and services to consumers in the UK.

BT Group, formerly known as British Telecom, is the incumbent phone operator and largest supplier of fixed-line phone services in Britain with about 38% market share. BT’s external sales are split among global services (22.8%), retail (20.2%), EE (21.1%), business (19.3%), wholesale (8.2%), and Openreach and other (8.4%). BT is the largest supplier of high-speed Internet lines, including lines it wholesales.

Stock Code BT.A
Stock Valuation and Dividend Analysis Below

BT Group Dividend Yield

For stocks that has a history of paying meaningful dividends, the stock price is often dependent on how much dividend the company pays.
At the price of GBP2.22 as at 15 Jul 2018, BT Group PLC is trading at a Dividend Yield of 6.9%. This is a 73.2% discount to its historical average Dividend Yield of 4.0%.  (Note: The lower/higher the dividend yield, the more expensive/cheaper the stock is.)
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
We should not only be concerned about the amount of dividends, we should determine if the dividends paid out by the company are sustainable. One way to do that is to compare dividends paid out to the cash flows that the company is generating.
The company usually pays less dividends than its free cash flow, which is good.

BT Group Dividend vs Free Cash Flow

Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

Financial Condition Analysis: Suzlon Energy Ltd (532667)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
SUZLON ENERGY LTD India/
NSE
Industrials – Industrial Products – Diversified Industrials INR7.40
@ 15 Jul 2018
COMPANY PROFILE Suzlon Energy Ltd is a wind turbine manufacturer. It operates in North and South America, Asia, Australia, Europe, and Africa. The Company’s products include onshore turbines and offshore turbines.

Suzlon Energy Ltd is an India-based company that provides renewable energy solutions. The company’s products comprise wind turbine generators and related components, as well as solar energy solutions. In addition, the company provides services that support the operation of wind turbine generators. Wind power products and related services account for the majority of the company’s sales. The company generates almost all its revenue from India, Europe, and North America.

Stock Code 532667
Financial Condition Analysis Below
It is important to analyze the financial condition of the company you want to invest in because if a company goes bankrupt, the chances are high that you will lose all your investment. Even if the company does not go bankrupt, the deterioration in financial condition will cause more and more investors to avoid the company and valuation will drop. Weak financial condition also limits the opportunities that a company has to grow its business.
In order to determine the financial condition of the company, we usually use the Z score, which was introduced by Edward Altman,  a Professor of Finance at New York University. This score is a composite measure of a firm’s financial condition and has been proven to be able to predict with high accuracy whether a firm will go into bankruptcy within the next two years.

Suzlon Energy Altman Z-Score

Z-score has been improving since 2013. The main reasons for this are:
* higher EBIT as a proportion of total assets
* higher revenue as a proportion of total assets

However, the latest Z-Score of the company as at Mar 2018 was 0.8, which is in the distressed zone.

The latest shareholders’ equity of the company is negative, which is not a good sign. It means that the company has incurred accumulated losses in the past that has totally wiped out its shareholders’ equity.
We use the Altman Z-Score formula for non-listed companies instead. Altman Z-Score formula for listed companies uses Market Cap instead of Book Value of equity and therefore does not penalize companies for having negative shareholders’ equity.
The various components that go into the Z-Score are shown below:

Suzlon Energy Sales Turnover

This is the Revenue Turnover ratio and it reflects the amount of revenue the company is able to generate from the use of its assets.  Companies that have difficulty generating revenue cannot generate consistent cash flow to pay its bills.
The amount of revenue generated from assets has been on an uptrend since 2011.

Suzlon Energy Retained Earnings

The more profits are retained within the firm, the greater the buffer of reserves for the company to weather difficult times.
The level of retained earnings relative to assets has been on a downtrend since 2005. Currently, retained earnings are at 1.2% of total assets.

Suzlon Energy ROA

This measures the ability of the company to generate EBIT (earnings before interest and taxes) from its assets.
EBIT as a % of assets has been erratic. Currently, EBIT is at 10.7% of total assets.

Suzlon Energy Total Liabilities

This is an indication of the level of borrowings of the firm. A high level of borrowings will affect survivability as it may not have enough cash flows to meet its debt obligations.
The level of borrowings has been on an uptrend since 2008.

Suzlon Energy Working Capital

Working capital is essential to the operations of the company and a low level of working capital may result in liquidity problems. Working capital relative to total assets has been on a downtrend since 2006.
Financial condition analysis is an important part of stock analysis because an investor will make a loss on a stock if it goes bankrupt. The financial condition of a company is also important because investors will attribute a discount to the theoretical fair valuation of the company depending on how bad the financial condition is. ProThinker uses multiple valuation indicators to value a stock and then attribute a discount when necessary depending on the financial condition.
The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

Stock Valuation: Aminex Plc (AEX)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
AMINEX PLC Ireland/
LSE
Energy – Oil & Gas – E&P – Oil & Gas E&P GBP0.02
@ 15 Jul 2018
COMPANY PROFILE Aminex PLC is an oil and gas company. Its principal activities are the production, appraisal, and development, with exploration potential, of oil and gas assets reserves and resources.

Aminex PLC is a UK-based oil and gas company. Its principal activities are the production, appraisal, and development, with exploration potential, of oil and gas assets reserves and resources. The company operating segments are Producing Oil and Gas Properties, Exploration Activities and Oilfield Goods and Services. It operates in Tanzania through its subsidiaries Ndovu Resources Limited. The company holds nearly three licenses in Tanzania namely Kiliwani North, Ruvuma PSA, and Nyuni Area.

Stock Code AEX
Stock Valuation Below

Aminex Price to Sales

The Price to Sales Ratio is a commonly used valuation indicator for a stock. While not as popular as the Price to Earnings Ratio, it overcomes some of the limitations of the PE Ratio in that it can be used even when the company is not making a profit or only making minimal profits. However, it should not be used by itself because a company may be achieving sales but not profits.
At the price of GBP0.02 as at 15 Jul 2018, Aminex Plc is trading at a Price to Sales Ratio of 10.0 times last 12 months sales.  This is a 11.0% premium to its historical average Price to Sales Ratio of 17.9 times.
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from gurufocus.com. Estimates are from gurufocus and/or 4-traders.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.