Friday, February 01, 2013

$RDSA #Shell (Mr. Market) price is what you pay, (Graham) value is what you get

See for more background.

Shell includes 2012 results 31/1/2012

SECTOR: [PASS]  RDS.A 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. RDS.A's sales of €346,244 million, based on 2012 sales, pass 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. RDS.A's current ratio €85,038m/€69,491m of 1.2 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 RDS.A is €25,271 million, while the net
current assets are €15,547 million. RDS.A fails this test.

LONG-TERM EPS GROWTH: [PASS] 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. Companies with this type of growth tend to be financially secure and have proven themselves over time. RDS.A's EPS growth over that period of 124% passes the EPS growth test.

P/E RATIO [PASS]  The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. RDS.A's P/E of 8.30 (using the 3 year PE) passes this test.

PRICE/BOOK RATIO: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. RDS.A has a book value of €22,31 per share and passes this test.

Margin of Safety: €41 Graham value / €25,66  Mr. Market price = 60%

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

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