Hokkaido Electric Power Company (TSE:9509) Completes ¥80 Billion Bond Offering, Is The Stock Above Fair Value?
Hokkaido Electric Power Company (TSE:9509) has completed an ¥80 billion subordinated, unsecured callable bond offering due July 25, 2063. The long maturity and structure provide investors with fresh information on the company’s funding profile.
See our latest analysis for Hokkaido Electric Power Company.
The new ¥80 billion bond comes as Hokkaido Electric Power Company’s share price shows mixed momentum, with a 10.29% 1 month share price return and a 2.60% 3 month share price return, while year to date the share price has declined 6.73%. Over longer horizons, total shareholder return stands at 12.56% over 1 year, 73.70% over 3 years and 131.90% over 5 years, which gives context to how investors have been rewarded over time.
If this funding move has you thinking about where else capital is flowing in the sector, it can be useful to scan other power grid and infrastructure players through the 35 power grid technology and infrastructure stocks
The new ¥80 billion bond changes how Hokkaido Electric Power Company is funded, while the share price sits between recent gains and this year’s decline. Is today’s level a fair entry point, or would it be more prudent to wait before investing?
Price-to-Earnings of 7.9x: Is it justified?
On a simple earnings yardstick, Hokkaido Electric Power Company changes hands at a P/E of 7.9x, while the last close sits at ¥1,026. That puts the stock below the wider JP market P/E of 14x, even though it is above the 6.6x peer average for similar companies.
The P/E ratio compares the current share price to earnings per share. For a regulated electric utility like Hokkaido Electric Power Company, this is a common way investors frame how much they are paying today for each unit of current earnings, particularly where near term growth expectations are relatively moderate.
Analysts currently expect earnings to grow 14.8% per year, which is faster than the 9.8% forecast for the broader JP market. At the same time, the company’s return on equity is described as low at 6.1% and is forecast to remain below 10% in three years. The estimated fair P/E of 12.2x sits well above the current 7.9x, which suggests the market is applying a lower earnings multiple than that fair ratio points to.
The picture looks different when lining up against peers. Compared with the JP Electric Utilities industry average of 24.6% total return over the past year, Hokkaido Electric Power Company has lagged, and its P/E of 7.9x is higher than the 6.6x peer average yet still below the wider Asian Electric Utilities P/E of 14.3x. That combination signals investors are paying more than direct peers for the same unit of earnings yet less than regional utility stocks overall. The fair ratio also indicates that the current multiple can be assessed against the 12.2x benchmark when considering sentiment and fundamentals.
Explore the SWS fair ratio for Hokkaido Electric Power Company
Result: Price-to-Earnings of 7.9x (ABOUT RIGHT)
However, you still need to weigh risks such as tighter regulation on Hokkaido Electric Power Company and any setback in earnings growth that could challenge the current P/E story.
Find out about the key risks to this Hokkaido Electric Power Company narrative.
Another view on Hokkaido Electric Power Company’s value
The SWS DCF model points to an estimated future cash flow value of ¥971.24 per share, compared with Hokkaido Electric Power Company’s recent ¥1,026 price. That suggests the stock is priced above this model’s output. A key question for investors is how much weight to place on this valuation gap relative to the P/E-based signal.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Hokkaido Electric Power Company for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 19 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Given the mixed signals around Hokkaido Electric Power Company, it can be helpful to move quickly and evaluate the full picture yourself. A good place to start is by checking the 2 key rewards and 3 important warning signs.
Looking for more investment ideas beyond Hokkaido Electric Power Company?
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- Target long term compounding potential by focusing on quality businesses trading on appealing valuations with the 19 high quality undervalued stocks
- Explore potential income streams by reviewing companies with strong yields and resilient payouts through the 42 dividend fortresses
- Focus on financial strength first by filtering for companies with robust balance sheets and solid fundamentals via the solid balance sheet and fundamentals stocks screener (39 results)
This 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.
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