Monday, September 15, 2014

Fugro for sale at a 40% discount to Graham Number value

Mr. Market is very pessimistic today...

Figures adjusted for non-cash depreciation of book value in 2014.

SECTOR: [PASS]  Fugro 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. Fugro's sales of €2,478 million, based on 2013 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. Fugro's current ratio €1,111m/€697m of 1.6 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 Fugro is €822 million, while the net current assets are €414 million. Fugro 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. Fugro's EPS growth was 334% over the past 10 years, Fugro passes this test.

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. Fugro's E/P of 14% (using the average of last 3 years 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. Fugro has a Graham number of (22,5 x €4,2 EPS x €20 Book Value) = €43.4 and passes this test.

Recommendation: Buy at Mr. Market price up to €26.

Last update:

Based on annual results released today March 7, 2014 and (Mr.) Market price then of €39.  

Comments, questions or E-mails welcome:

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