REC Ltd has been a dog of a stock. Its a company owned by PFC, which in turn is owned by the Govt of India. The hallmark of this company has been the very high dividend yield since past many years, more particularly so in last three years. Dividend yield has consistently been above 7% and currently based on past year’s dividend track record is at close to 10% yield. Along with the Sep quarter results, company has declared an interim dividend of Rs 5 per share and the ex dividend date is 9 Nov 2022. cmp 104. Based on earnings of last 12 months its available at less than 3 PE.
Coming to historical PE of the company, barring 2019, where it reached PE of 7, it has always remained at very low valuations. Last 3 years numbers have been consistently good, considering the valuations.
The scenario with current market is about slight change in perception towards govt companies. A lot of PSU banks have rallied hard, defence sector PSU companies have done well, and some others like BHEL seem to be showing promise in terms of price strength. In short, PSU companies seem to be enjoying market fancy albeit in varying degrees based on sectors and individual company.
Companies like REC and PFC have been long ignored if one looks at valuations and dividend yield. Its difficult to figure out what could change in terms of business prospects, but some change in market perception towards these kind of ultra cheap names could provide decent returns with limited downside.
Putting up chart of REC. Stock price on weekly chart shows a rally from Covid lows of 60 to high of 126 in late 2021. In fact level of 126 has been a strong resistance since 2018.
After the swing high of 126, stock price went down and took support close to 61.8% (at 91) retracement level of previous rally from 60 to 126. On short term daily chart it formed a double bottom at 91 and confirmed the pattern by breaking out above 96. Another major double bottom breakout can happen if stock price crosses 109-110, with range of double bottom being from 91 to 109 and if this pattern plays out by breaking above 110, target can be closer to 130, which takes it above strong resistance of 126. Falling channel marked between solid red lines shows last leg of fall and since then level of 91 and 95 (in dotted green lines) shows a double bottom in short term chart. It also shows a higher bottom at 91 as compared to previous bottoms at 60 and 68. The structure in weekly chart shows a higher bottom, higher top pattern till now and a break above 126 would signify a significant change in trend.
In the immediate near term, stock will go ex dividend by 5 Rs and we need to see how stock price reacts on going ex dividend.
disc: token position based on chart structure. A break above 126 if and when it happens could be a time to seriously consider higher allocation.
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