P/B Ratio Case Study: Investment arbitrage on KeppelLand
*Read part 1 of this article if you haven’t already.
In early 2014, I bought KeppelLand, a property developer, for $3.30. At $3.30, the P/B ratio was about 0.78. This meant that the stock was trading at a 22% discount to its book value. The P/E was ratio was 10 and they boasted a portfolio of high quality residential and commercial properties, of which some were awaiting project completion. After assessing the the stock based on other quantitative and qualitative metrics, I decided to buy the stock. I set a conservative target sell price of $4.20, which was the NAV of KeppelLand at that time. The dividend yield was a good 4.2% which made the deal even better.
Low and behold, I sold my KeppelLand sooner than expected at $4.50 in early 2015. The catalyst? Keppel Corp (parent company) offered to privatise KeppelLand between $4.38-4.60 a share. Do note that a 36% capital gain within 1 year does not come by often. If not for the privatisation deal, I might have to wait much longer for my investment idea to materialize.
This case study is just to illustrate the application of the P/B ratio. Do take into account that actual stock performance may differ greatly.
Total return on Keppel Land : 36% capital gain + 4.2% dividend = 40.2%
If you like our content, remember to subscribe to our mailing list and like us on Facebook. More importantly, share this article with someone who may benefit from it!
Till next week, have a good weekend!