Tuesday, February 05, 2013

KPN: no Margin of Safety at €3,30

Last year at the beginning of 2012 with 2011 results and February 4th 2012 market price:




SECTOR: [PASS]  KPN is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. KPN's sales of €13,163 million, based on 2011 sales, passes this test.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. KPN's current ratio €5,085/€5,609m of 0.9 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for KPN is $13,010 million, while the net current assets are $-524 million. KPN fails this test.

LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for KPN have decreased since 2003 and therefore the company fails this criterion.


Earnings Yield: [PASS]  The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. KPN's E/P of 19% (using the current Earnings) passes this test.

Graham Number value: [PASS]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. KPN has a Graham number of (22,5 x €0,9 EPS x €2 Book Value) = €6,2

Conclusion yesterday: Value trap and too much debt.
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Today 2012 numbers: EPS drop from €1,06 to €0,49 , book value/per share and EPS (Earnings per share) will decrease from €2 to €1 and from €0,9 to €0,45 respectively because of a major rights issue which has been announced.


SECTOR: [PASS]  KPN is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. KPN's sales of €12,708 million, based on 2012 sales, passes this test.

CURRENT RATIO: Improved?

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: Will improve.

LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for KPN have decreased since 2003 and therefore the company fails this criterion.


Earnings Yield: Will go down by half, might still be a pass.

Graham Number value: [PASS]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. KPN has a Graham number of (22,5 x €0,5 EPS x €1 Book Value) = €3,4


Comments, questions or E-mails welcome: ajbrenninkmeijer (a) gmail.com

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