Combined Motor Holdings (CMH) is one of those companies that is just out of favour with the big institutional fund managers. It is clearly a blue chip share with a long track record of rising earnings, and yet because it is in the motor trade, which has been doing badly in the past year, the share has been bid down to a P:E of 7,5. Over the past seven years, CMH’s earnings per share have been as follows:
This shows an average annual growth of 19,6% per annum over six years and puts the company on a P:E Growth ratio of 0,38 – indicating excellent value. If management is capable of growing earnings per share by 8% in a year when their turnover fell by 7% (as they did in the year ended February 2017) then you know that this is a highly efficient and well run business.
We also advocate looking at any high-quality share which is trading on a dividend yield of 5% or more. CMH is currently trading on a dividend yield of over 6% – which should at least make it worthy of your attention.
The share’s price chart over the past 8 years is as follows:
Of course, what would make a huge difference to CMH would be any improvement in the South African economy. Right now, immediately following the downgrade and with some analysts saying that a recession is inevitable, it is difficult to get enthusiastic about any sort of recovery. But that is the nature of being a contrarian of (to quote Warren Buffett) “Being greedy when everyone else is fearful”. If you are not willing to take any risks then you are probably not going to make any money. CMH looks like a good risk to us.