Latest news with #Megachem
Yahoo
a day ago
- Business
- Yahoo
Megachem's (Catalist:5DS) Profits Appear To Have Quality Issues
Explore Megachem's Fair Values from the Community and select yours The recent earnings posted by Megachem Limited (Catalist:5DS) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. The Impact Of Unusual Items On Profit To properly understand Megachem's profit results, we need to consider the S$5.1m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Megachem had a rather significant contribution from unusual items relative to its profit to June 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Megachem. Our Take On Megachem's Profit Performance As we discussed above, we think the significant positive unusual item makes Megachem's earnings a poor guide to its underlying profitability. For this reason, we think that Megachem's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Megachem as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Megachem (2 are concerning) you should be familiar with. Today we've zoomed in on a single data point to better understand the nature of Megachem's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Yahoo
5 days ago
- Business
- Yahoo
The Returns On Capital At Megachem (Catalist:5DS) Don't Inspire Confidence
Explore Megachem's Fair Values from the Community and select yours What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Megachem (Catalist:5DS) has the makings of a multi-bagger going forward, but let's have a look at why that may be. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. What Is Return On Capital Employed (ROCE)? Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Megachem: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.039 = S$2.7m ÷ (S$107m - S$38m) (Based on the trailing twelve months to June 2025). Therefore, Megachem has an ROCE of 3.9%. Even though it's in line with the industry average of 4.1%, it's still a low return by itself. View our latest analysis for Megachem Historical performance is a great place to start when researching a stock so above you can see the gauge for Megachem's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Megachem. What Can We Tell From Megachem's ROCE Trend? In terms of Megachem's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 6.4%, but since then they've fallen to 3.9%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line. The Key Takeaway In summary, Megachem is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 44% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high. Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Megachem (of which 2 make us uncomfortable!) that you should know about. While Megachem may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
23-05-2025
- Business
- Yahoo
Calculating The Fair Value Of Megachem Limited (Catalist:5DS)
Using the 2 Stage Free Cash Flow to Equity, Megachem fair value estimate is S$0.52 Megachem's S$0.42 share price indicates it is trading at similar levels as its fair value estimate Peers of Megachem are currently trading on average at a 133% premium Today we will run through one way of estimating the intrinsic value of Megachem Limited (Catalist:5DS) by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example! Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (SGD, Millions) S$6.82m S$5.63m S$4.98m S$4.61m S$4.40m S$4.30m S$4.25m S$4.26m S$4.29m S$4.34m Growth Rate Estimate Source Est @ -26.06% Est @ -17.54% Est @ -11.57% Est @ -7.39% Est @ -4.46% Est @ -2.42% Est @ -0.98% Est @ 0.02% Est @ 0.72% Est @ 1.21% Present Value (SGD, Millions) Discounted @ 8.1% S$6.3 S$4.8 S$3.9 S$3.4 S$3.0 S$2.7 S$2.5 S$2.3 S$2.1 S$2.0 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = S$33m After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.1%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = S$4.3m× (1 + 2.4%) ÷ (8.1%– 2.4%) = S$78m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= S$78m÷ ( 1 + 8.1%)10= S$36m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is S$69m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$0.4, the company appears about fair value at a 18% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Megachem as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.1%, which is based on a levered beta of 1.322. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Megachem Strength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Weakness Dividend is low compared to the top 25% of dividend payers in the Trade Distributors market. Opportunity Current share price is below our estimate of fair value. Lack of analyst coverage makes it difficult to determine 5DS' earnings prospects. Threat No apparent threats visible for 5DS. Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Megachem, we've put together three additional aspects you should further examine: Risks: Case in point, we've spotted 4 warning signs for Megachem you should be aware of, and 2 of them are significant. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for 5DS's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the CATALIST every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
