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The 100 cheapest shares on the ASX

Credit: Tiz

Last week I wrote an article called the 20 cheapest blue chip shares on the ASX using a valuation metric called Price-to-Book. This week I’ve ranked the top 100 ASX stocks using another one of my favourite metrics called the Enterprise Value (EV). I have then compared it to the company’s market capital.

The EV to market capital ratio helps value investors to identify undervalued companies. It heavily favours companies with lots of cash and little or no debt, which are the type of companies I like to invest in.

What is Enterprise Value?

Think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company’s debt, but would pocket its cash.

EV differs significantly from simple market capitalisation in several ways, and many consider it to be a more accurate representation of a firm’s value.

The value of a firm’s debt, for example, would need to be paid by the buyer when taking over a company, thus EV provides a much more accurate takeover valuation because it includes debt in its value calculation.

How to calculate Enterprise Value correctly

In its simplest form, Enterprise Value (EV) is calculated as the market cap plus debt and minority interest and preferred shares, minus total cash and cash equivalents.

As an example let’s take a look at Worleyparsons Limited  (ASX: WOR).

First, we start with the Market Capitalisation (M/C), which we can find at a number of sites, like Google Finance. As you can see its M/C is $1.3 Billion:

3JCQp[1]

Next, we need to add short-term and long-term debt to the market cap, which you can find on the company’s balance sheet. As you can see, Worleyparsons has $25.5 million in short-term debt and $1,210.4 million in long-term debt. That means total debt is $1.23 billion:

toXAL[1]

Worleyparsons has no minority interests or preferred shares so, all we have to do now is subtract any cash and cash equivalents. This figure can also be found on the balance sheet. As you can see Worleyparsons has $381.9 million in cash and cash equivalents:

N2UTO[1]

Now we have everything we need to calculate the EV.

Market Cap is $1.3 billion
plus
Short term and long-term debt is $1.235 billion
plus
Minority interests is $0
plus
Preferred shares is $0
minus
Cash and cash equivalents are $381.9 Million

This gives us a total Enterprise Value of $2.15 Billion.

In other words, assuming I could buy all the shares in the whole company, I could buy Worleyparsons for $1.3 billion but, when I take into consideration its balance sheet, as an ‘acquirer’ it’s actually costing me $2.15 billion.

How do the top 100 ASX stocks rank for the EV/market cap ratio?

So, here’s my ranking of the top 100 ASX companies by market capitalisation and EV. The table shows the companies with the greatest discount to their current market value when you consider their EV. Companies are listed in ‘discount’ order, highest to lowest.

I’ve excluded financials, utilities, and A-REITs because of the nature of their balance sheets from an EV point of view. I’ve also excluded a couple of recently-listed companies that had insufficient data.

Rank Company Name M/Cap ($B) EV ($B) Discount ($B) % of M/C
1 Flight Centre Travel Group Ltd (ASX: FLT) 3.58 2.15 1.43 39.94
2 Washington H Soul Pattinson & Co Ltd (ASX: SOL) 3.69 2.44 1.25 33.88
3 Oz Minerals Limited (ASX: OZL) 1.22 0.81 0.41 33.61
4 Mantra Group Ltd (ASX: MTR) 1.23 0.93 0.30 24.39
5 Northern Star Resources Ltd (ASX: NST) 1.46 1.26 0.20 13.70
6 New Hope Corp Ltd (ASX: NHC) 1.70 1.5 0.20 11.76
7 EVOLUTION FPO (ASX: EVN) 1.76 1.56 0.20 11.36
8 Independence Group NL (ASX: IGO) 1.24 1.1 0.14 11.29
9 Regis Healthcare Ltd (ASX: REG) 1.80 1.63 0.17 9.44
10 Resmed Inc (ASX: RMD) 11.00 10 1.00 9.09
11 Sims Metal Management Limited (ASX: SGM) 1.36 1.25 0.11 8.09
12 Cimic Group Limited (ASX: CIM) 8.48 7.91 0.57 6.72
13 Estia Health Ltd (ASX: EHE) 1.39 1.31 0.08 5.76
14 CSR Limited (ASX: CSR) 1.49 1.42 0.07 4.70
15 Sirtex Medical Limited (ASX: SRX) 2.20 2.12 0.08 3.64
16 Fairfax Media Limited (ASX: FXJ) 2.19 2.13 0.06 2.74
17 Technology One Ltd (ASX: TNE) 1.35 1.33 0.02 1.48
18 ARB Corp Ltd (ASX: ARB) 1.23 1.22 0.01 0.81
19 IPH Ltd (ASX: IPH) 1.47 1.47 0.00 0.00
20 Bellamy’s Australia Ltd (ASX: BAL) 1.1 1.1 0.00 0.00
21 Blackmores Limited (ASX: BKL) 3.16 3.17 -0.01 -0.32
22 Macquarie Atlas Roads Group (ASX: MQA) 2.15 2.17 -0.02 -0.93
23 REA Group Limited (ASX: REA) 6.61 6.68 -0.07 -1.06
24 Navitas Limited (ASX: NVT) 1.69 1.71 -0.02 -1.18
25 Domino’s Pizza Enterprises Ltd (ASX: DMP) 4.35 4.42 -0.07 -1.61
26 Cochlear Limited (ASX: COH) 5.33 5.46 -0.13 -2.44
27 Alumina Limited (ASX: AWC) 3.20 3.28 -0.08 -2.50
28 Reece Ltd (ASX: REH) 3.44 3.53 -0.09 -2.62
29 Iluka Resources Limited (ASX: ILU) 2.25 2.33 -0.08 -3.56
30 CSL Limited (ASX: CSL) 45.00 47 -2.00 -4.44
31 TPG Telecom Ltd (ASX: TPM) 8.74 9.14 -0.40 -4.58
32 Treasury Wine Estates Limited (ASX: TWE) 5.88 6.15 -0.27 -4.59
33 JB Hi-fi Limited (ASX: JBH) 1.78 1.87 -0.09 -5.06
34 Vocus Communications Limited (ASX: VOC) 1.72 1.82 -0.10 -5.81
35 James Hardie Industries (ASX: JHX) 7.28 7.76 -0.48 -6.59
36 Carsales.com Limited (ASX: CAR) 2.52 2.7 -0.18 -7.14
37 SOUTH32 Limited (ASX: S32) 6.15 6.64 -0.49 -7.97
38 Veda Group Ltd (ASX: VED) 2.34 2.53 -0.19 -8.12
39 IRESS Ltd (ASX: IRE) 1.54 1.67 -0.13 -8.44
40 Downer Edi Limited (ASX: DOW) 1.48 1.62 -0.14 -9.46
41 Seek Limited (ASX: SEK) 4.77 5.25 -0.48 -10.06
42 Harvey Norman Holdings Limited (ASX: HVN) 4.42 4.91 -0.49 -11.09
43 Caltex Australia Limited (ASX: CTX) 9.00 10 -1.00 -11.11
44 Bluescope Steel Limited (ASX: BSL) 2.31 2.57 -0.26 -11.26
45 Wesfarmers Ltd (ASX: WES) 43.00 48 -5.00 -11.63
46 Adelaide Brighton Limited (ASX: ABC) 2.78 3.13 -0.35 -12.59
47 Tatts Group Limited (ASX: TTS) 6.2 7 -0.80 -12.90
48 Brickworks Ltd (ASX: BKW) 2.29 2.59 -0.30 -13.10
49 Trade Me Group Ltd (ASX: TME) 1.36 1.54 -0.18 -13.24
50 Woolworths Limited (ASX: WOW) 30.00 34 -4.00 -13.33
51 The Star Entertainment Group Limited (ASX: SGR) 3.95 4.48 -0.53 -13.42
52 Coca-cola Amatil Limited (ASX: CCL) 7.00 8 -1.00 -14.29
53 Duluxgroup Limited (ASX: DLX) 2.43 2.78 -0.35 -14.40
54 Ramsay Health Care Limited (ASX: RHC) 13.00 15 -2.00 -15.38
55 AVEO Group (ASX: AOG) 1.65 1.93 -0.28 -16.97
56 Ansell Limited (ASX: ANN) 3.28 3.85 -0.57 -17.38
57 Brambles Limited (ASX: BXB) 17.00 20 -3.00 -17.65
58 InvoCare Ltd (ASX: IVC) 1.3 1.53 -0.23 -17.69
59 Boral Limited (ASX: BLD) 4.16 4.96 -0.80 -19.23
60 Super Retail Group Ltd (ASX: SUL) 2.05 2.45 -0.40 -19.51
61 Qube Holdings Limited (ASX: QUB) 2.46 2.96 -0.50 -20.33
62 Telstra Corporation Ltd (ASX: TLS) 66.00 80 -14.00 -21.21
63 G8 Education Ltd (ASX: GEM) 1.3 1.58 -0.28 -21.54
64 Woodside Petroleum Limited (ASX: WPL) 23.00 28 -5.00 -21.74
65 Healthscope Limited (ASX: HSO) 4.34 5.29 -0.95 -21.89
66 M2 Group (ASX: MTU) 2.13 2.61 -0.48 -22.54
67 Aristocrat Leisure Limited (ASX: ALL) 6.2 7.6 -1.40 -22.58
68 Orora Limited (ASX: ORA) 2.63 3.23 -0.60 -22.81
69 Lendlease Group (ASX: LLC) 7.41 9.18 -1.77 -23.89
70 Sonic Healthcare Limited (ASX: SHL) 8.00 10 -2.00 -25.00
71 Crown Resorts Limited (ASX: CWN) 8.00 10 -2.00 -25.00
72 Tabcorp Holdings Limited (ASX: TAH) 3.88 4.87 -0.99 -25.52
73 Amcor Limited (ASX: AMC) 15.00 19 -4.00 -26.67
74 Aurizon Holdings Limited (ASX: AZJ) 11.00 14 -3.00 -27.27
75 Qantas Airways Limited (ASX: QAN) 7.00 9 -2.00 -28.57
76 Pact Group Holdings Ltd (ASX: PGH) 1.40 1.8 -0.40 -28.57
77 AP Eagers Ltd (ASX: APE) 2.00 2.62 -0.62 -31.00
78 Oil Search Limited (ASX: OSH) 12.00 16 -4.00 -33.33
79 Incitec Pivot Limited (ASX: IPL) 6.00 8 -2.00 -33.33
80 Recall Holdings Limited (ASX: REC) 2.09 2.81 -0.72 -34.45
81 RIO Tinto Limited (ASX: RIO) 81.00 109 -28.00 -34.57
82 Graincorp Limited (ASX: GNC) 1.87 2.52 -0.65 -34.76
83 Orica Limited (ASX: ORI) 5.70 7.73 -2.03 -35.61
84 Nufarm Ltd (ASX: NUF) 2.18 2.97 -0.79 -36.24
85 Spotless Group Holdings Limited (ASX: SPO) 1.36 1.92 -0.56 -41.18
86 Nine Entertainment Co. Holdings Ltd (ASX: NEC) 1.46 2.07 -0.61 -41.78
87 Sydney Airport Holdings Ltd (ASX: SYD) 14.00 20 -6.00 -42.86
88 BHP Billiton Limited (ASX: BHP) 70.00 105 -35.00 -50.00
89 Newcrest Mining Limited (ASX: NCM) 8.00 12 -4.00 -50.00
90 Asciano Limited (ASX: AIO) 8.00 12 -4.00 -50.00
91 Fletcher Building Ltd (ASX: FBU) 4.50 6.79 -2.29 -50.89
92 Transurban Group (ASX: TCL) 19.00 29 -10.00 -52.63
93 Als Limited (ASX: ALQ) 1.58 2.43 -0.85 -53.80
94 Automotive Holdings Group Ltd (ASX: AHG) 1.3 2.09 -0.79 -60.77
95 Worleyparsons Limited (ASX: WOR) 1.30 2.15 -0.85 -65.38
96 Primary Health Care Limited (ASX: PRY) 1.68 2.79 -1.11 -66.07
97 Virgin Australia Holdings Ltd (ASX: VAH) 1.53 3.17 -1.64 -107.19
98 Seven Group Holdings Ltd (ASX: SVW) 1.48 3.26 -1.78 -120.27
99 Fortescue Metals Group Limited (ASX: FMG) 5.90 15.25 -9.35 -158.47
100 Santos Ltd (ASX: STO) 4.87 13.47 -8.60 -176.59

Market Capitalisation – Share Price * Number of Outstanding Shares (expressed in $billions)
Enterprise Value – Market cap plus debt and minority interest and preferred shares, minus total cash and cash equivalents (expressed in $billions)
Discount – The discount between M/C and EV (expressed in $billions)
% of M/C – The discount as a percentage of market cap (expressed as a percentage)

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Motley Fool contributor John Hopkins owns shares of Flight Centre Travel Group Limited and REA Group Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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