Sunday, May 08, 2016

AFC AJAX intrinsic value Graham Defensive screen waardering AEX:AJAX NL0000018034

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

SALES:[FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. AJAX's sales of €105 million, based on 2014 sales, fail 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. AJAX's current ratio €113m/€58m of 1.9 just fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] 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 AJAX is €10,26 million, while the net current assets are €55 million. AJAX passes 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. Companies with this type of growth tend to be financially secure and have proven themselves over time. AJAX's expects to make a loss this year and thus fails the test.

Earnings Yield: [FAIL] 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. AJAX's E/P of 1% (using this years Earnings) fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. AJAX has a Graham number of (15 x €0,6 EPS x 1,5 x €6,00 Book Value) = €9 

Dividend: €0,08/€9 = 1%

Conclusion: AJAX has increased in value over the past years, but will make a loss this year, not being in the Champions League. If AJAX becomes the Dutch champion, then the value of the stock should increase. 

Note: AJAX probably is an organisation focused on winning football games, not maximizing long-term shareholder wealth.

See: for more in depth, qualitative analysis of "good" companies.

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