Monday, January 25, 2016

Arcadis on sale: Intrinsic Value calculation AEX:ARCAD NL0006237562 based on Bejamin Graham Number

You can buy a partial ownership ( a stock) of Arcadis today for €15,20. The intrinsic value of the company is €19 based on a simple Benjamin Graham Number calculation I did today (see math below). 

The second graph was my previous valuation based on based on 2013 results.

2003, 2005, 2009, 2012 and today were/is the moment(s) to buy Arcadis stock, although debt is a bit high compared to what Graham recommended for Defensive investors.

Here's the math/analysis:

SECTOR: [PASS] Arcadis 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. Arcadis's sales of €2 639 million, based on 2014 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. Arcadis's current ratio €1 297m/€1 006m of 1.3 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 meet this criterion display one of the attributes of a financially secure organization. The long-term debt for Arcadis is €598 million, while the net current assets are €291 millionArcadis 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. Arcadis's EPS growth over that period of 145% passes the EPS growth 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. Accell's E/P of 8% (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. Aracdis has a Graham number of (15 x €1,3 EPS x 1,5 x €12 Book Value) = €18,75. Today's price is: €15,20

Dividend: Arcadis pays a dividend of €0,60, whichs results in a 4% dividend yield.

Conclusion: You can buy a Euro of value for 80 cents.

Comments, questions or E-mails welcome:

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