On 11 Jan, Comfort (CD) closed at $1.21, the lowest close since 31 Oct 2008. The next day, to the horror of CD’s shareholders, it broke $1.21 with volume expansion and closed at $1.18. At the time of this write-up, CD closed today at $1.14, the lowest close last seen 29 Oct 2008.
This post was originally posted here. The writer, Ernest Lim is a veteran community member and blogger on InvestingNote, with a username known as @el15 and has close to 550 followers.
Will CD fall more? Or will this be a comfortable trade at current level? Let’s read on for more.
Possible reasons to be bullish
A) Still a recovery play
CD with its operations in Australia, China, Singapore, UK etc. should gradually benefit as economies re-open. China’s abrupt easing of its Covid measures will likely facilitate more commuting and travelling in China and outside China.
Based on Bloomberg, the consensus from analysts is still projecting CD to post a year-on year (“y-o-y”) net profit growth of 30% in FY22F; 16% in FY23F; 7% in FY24F. Thus, suffice to say that CD is still a recovery play and is likely to post year on year profit growth. Much cannot be said for some companies as they may report a y-o-y drop in net profit in FY23F especially if their FY22F is an exceptional year.
B) Valuations are incredibly low; 2.0x standard deviations below its average 10Y P/BV
Based on Bloomberg, CD trades at 2.0x standard deviations below its average 10Y P/BV of 1.9x. With net profit expected to rise in FY22F, FY23F and FY24F (see point A above), it does not seem justifiable to trade at such depressed valuations.
C) Net cash $647m; easily can finance M&A & 5-6% dividend yields
Based on some of the analyst reports which I have read, CD’s balance sheet has emerged stronger after the pandemic. CD has net cash amounting to $647m in 3QFY22 vs $520m in 4QFY21. In other words, 26% of market cap is backed by net cash. Such strong balance sheet should be able to support its dividends and any acquisitions. Furthermore, generally speaking, in a rising interest rate environment, having net cash is better than being in debt.
D) 14-year low price since 29 Oct 2008
During the height of the pandemic, CD traded to a low of around $1.30 – 1.31. At that time, the economy and human traffic come to an almost standstill and plagued with uncertainties on how the pandemic will pan out. It is difficult to see how its operations can be worse now compared to the pandemic. Granted that analysts have cut their profit estimates for CD, the consensus net profit still expects CD to post a 30% rise in FY22F; 16% in FY23F; 8% in FY24F.
E) Total potential upside is around 43% if the consensus is right
Based on Bloomberg, average analyst target price is $1.56; FY23F estimated div yield is at 6.0%. If the consensus is right, CD presents a total potential return of around 43%.
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