Sunday, May 08, 2016
Air France-KLM intrinsic value Graham Defensive PSE:AF FR0000031122 waardering
SECTOR: [PASS] AF 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. AF's sales of €26,062 million, based on trailing 12 month 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. AF's current ratio of €7,545m/€11,257m of 0.7 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 AF is €9,068 million, while the net current assets are €-3,712 million. AF 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 AF were negative in many of the past years and therefore the company fails this criterion.
P/E RATIO: [FAIL] 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. AF's P/E ratio is 18 this year and has made a loss over the past 3 years.
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. Book value is less than 1 Euro per share. AF is French and an airline, little wonder that it fails this test.
Conclusion: Do not buy.
Old diagram from 2014: Suggestion then: Do not buy.