Wednesday, May 18, 2016

HAL Trust increasing long-term shareholders’ value AEX:HAL BMG455841020 intrinsic value Graham Defensive screen

SECTOR: [PASS]  HAL 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. HAL's sales of €8.170 million, based on 2015 sales, passes 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. HAL's current ratio €4561m/€2380m of 1.9 just 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 HAL is €4 510 million, while the net current assets are €2 181 million. HAL 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. HAL's earnings have increased 70% over the past ten years.

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. HAL's E/P of 5% (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. HAL has a Graham number of (15 x €7,9 EPS x 1,5 x €89 Book Value) = €125,4 

Dividend: €6,50/€185 = 3,5% and has increased over the years.

Conclusion: HAL Trust has increased in value considerably over the past years, but the stock is not as cheap as it has been in the past. 

Note: "The Company’s strategy is focused on acquiring and holding significant shareholdings in companies, with the objective of increasing long-term shareholders’ value." They seem to be very good at this.

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

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