Shoud Investors Accept Delong Holdings Limited’s Privatisation Offer?
Delong Holdings Limited (SGX: BQO) has been one of the best performing stocks in Singapore over the past two years.
Since the turn of 2017, Delong’s share price has risen by a staggering 2,400%. On 27 September, Ding Liguo, the company’s executive chairman and chief executive officer made an offer to acquire the remaining 24.4% stake in the company for S$7.00 per share. Should investors take the offer and lock in their profits now? Here’s a quick breakdown of the company and what shareholders should consider.
Delong Holdings manufactures and sells hot-rolled steel coils and billets in China and Singapore. These hot-rolled steel coils are used in the infrastructure, pipe-making and machinery industries.
In addition, Delong is involved in the procurement and sale of iron ore, coal gas recycling, and the sale of large diameter steel mill rollers and cast steel articles. Headquartered in China, the company was listed in Singapore in 2005 through a reverse takeover of Teamsphere Limited.
Things to consider
The main thing that we want to find out is whether the stock is worth more or less than the offer price. Many factors come into play, such as where the company is headed in the future and whether its earnings per share can grow. In this article, I will just take a look at three simple valuation metrics — price-to-book ratio, price-to-earnings multiple and the dividend yield to see if the offer price makes sense.
The table below compares the offer price with the company’s historical and index metrics.
Source: Author’s compilation of data from Morningstar
Based on the information above, we can see that the offer price is low based on Delong’s last 12 month earnings and it also represents a discount to its book value per share. The offer price also represents a dividend yield that is above the index average, which might indicate that the price is still relatively low in comparison with the broader market.
The Foolish bottom line
From a quick glance at the table, it may seem obvious that the offer price is low. The company is also on a hot run, with earnings increasing seven-fold in 2017.
That said, the valuation comparison is just one part of the process. Investors should also look at how easily the company can sustain its earnings, industry trends, financial health and management capability. Only by putting everything together can investors get a better idea of whether a higher share price can really be achieved in the future.