A reader asked for an opinion on Ace Hardware (Ace) so I’ve had a quick look at it to determine whether it’s an investment worth considering.
Fair Value -> 1,780 – 2,280IDR, currently trading at 800IDR
As the Indonesian middle class and discretionary incomes continue to grow, retailers will benefit as they nibble on pieces of an ever-expanding pie. The premium retailers who occupy a niche market and have developed sustainable competitive advantages will significantly outperform. Ace Hardware stands to be one of those players with no long-term debt and an expanding store footprint.
Looking at the traditional relative valuation metrics it appears that Ace is overvalued. The level of development and amount of growth ahead of Ace mean that it’s worth looking at the total potential market for Ace to determine the intrinsic value. I believe that considering the total market for home improvement in Indonesia, Ace will still be undervalued, albeit expensive on near term metrics.