Sapura Energy Analysis

Hi friends,

Today, I would like to discuss about one of the stocks that I've already put my limit order on. I want to write the thought process as to how I've arrived to the decision of putting an order on this stock.

The first stock that I put a limit order on is Sapura Energy Berhad (SAPNRG).

I have to admit, I don't usually set my eyes on companies that gives out low dividends. I've came across this company several times in the past and looking at how low its dividend yields are, I quickly shrugged of any further effort of looking into it.

However, ever since the dramatic drop in the stock market lately, almost all of the companies I'm looking at right now have their dividend yields blew up. As a person who values dividends more than growth, this has certainly got me excited. Although, I am aware that at depressing times like this where the future economic prospects are looking bleak, the possibilities of dividends being cut or cancelled are very high. Based on this awareness, I will always tell myself that the next year or so, I should not be expecting any dividends. Instead, what matters to me now is to grab wonderful companies at wonderful prices. 

Lets look at some of the ratios relating to the performance of this company. Ratios like what I'm about to write here gives a good idea in terms of a company's intrinsic value and its financial strength.

There are 8 things that I look into a company before I make my decision to buy them. Here are the data that I gathered based on when the price is RM0.08 per share:

1. Graham Number ratio: 0.09

2. Price to book ratio: 0.11

3. Dividends yield: 6.66%

4. Price to earnings ratio: N/A

5. Current ratio: 1.34

6. Piotroski score: 2

7. Market capitalization: RM1.67 billion

8. Payout ratio: (Couldn't find it online)

Looking at this data, right of the bat the strongest reason for buying this company is that it is very cheap. For a company to have a book ratio and Graham Number ratio that low means that the company is extremely undervalued by the market. A good idea to portray this cheapness is to imagine yourself buying an item for 11 cents but having a potential of selling it back for RM1. Another strength of this company is because of its high dividends yield. Being a conservative investor, a dividend of 5% is enough to make me content on my investments. Anything higher than that would be a great bonus.

Unfortunately, that is as far as the strong qualities of the company goes. In other aspects of it, I would say that Sapura Energy is performing poorly below par. The two most obvious ones are its PE ratio and Piotroski score. Since the company hasn't made any profit as of late, we are unable to identify its PE ratio. Thus, this would've been a deal breaker for any investors because no sane man would ever buy an asset that doesn't earn anything. Another area where this company performs rather poorly is on its Piotroski score. This score represents the financial strength of the company and from this score, it could give us a good idea on whether its financial is positively generating or negatively generating income. Having a score of 2 out of 9 means that the company has a rather poor financial strength. 

Now that we've briefly touched on the strong and weak points of the company, all that's left is the quality of the company that falls on the neutral side of the spectrum where it neither performed spectacularly nor it is a deal breaker. Sapura has a current ratio of 1.34. So this means that its current asset is about 30% higher than its current liabilities. So the reason why I'm looking at this ratio is because on a worse-case-scenario, even if the company goes bankrupt, it could still sell all its current assets to cover its current liabilities while having some extra buffer for its investors. This is how I'm trying to mitigate the risk if a company is in its insolvency. Other than that, a market capitalization of one billion ringgit or more gives a good idea of how big the company is. A company with billions on its evaluation tends to have serious people at its corporate level that would do their best in avoiding any bankruptcy. Essentially, being in a situation where they are too big to fail. The last ratio, which is the payout ratio, was unfortunately unable to be determined. I couldn't find the ratios anywhere online so there's no comment on that.

So where am I going at here? What's my conclusion? Well, I have to admit, Sapura is the only company on my list where I lean more towards my "gut" feeling rather than what the analysis tells me. There's a part of me that keeps on thinking on the upside should thing bounces back after this depressingly low evaluations. Being the only stocks on my list that trades in a single digit cents, I have decided that I want to jump on this bandwagon, hoping for the value to increase when the global issue that we are experiencing now is done and dusted. 

Though by buying the company would totally go against my principle of investing, I have set a very strict rule for myself on the price that I am allowed to buy. I have set my limit order to be at RM0.02. Yes, I will only buy this company if the price per share drops from 8 cents to 2 cents. Seems highly unlikely, right? Well that's the strict rule I have imposed on myself on when I can buy Sapura. Even if it doesn't hit the 2 cents price per share, I would be totally okay if I didn't buy it. The reason being? Because the prospect of an energy company that solely depends on oil is not something that I see being beneficial in the next decades to come. If it hits 2 cents and my limit order goes through, I'm happy because I'll get it at a bargained price. If the trend reverses and goes up higher, I would still be okay because there are still a couple more stocks that I have on my watchlist to purchase.

That's my thought on Sapura Energy. Hope to post more about other stocks on my list. 

Thank you for reading, friends. Have a good day staying indoor!