Tuesday, August 02, 2016

Eurocommercial Properties intrinsic value Graham Analysis

Eurocommercial Porperties owns store real estate in Sweden, France and Italy. Retail sales are growing in those countries in 2016 with the exception of Paris due to terrorist attacks.

SECTOR: [PASS]  Eurocommercial Properties  is a real estate company. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Eurocommercial Properties' sales of €200 million, based on 2016 sales, just fails 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. Eurocommercial Properties' current ratio €115m/€197m of 0,6 is too low.

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 Eurocommercial Properties is €1 221 million, while the net current assets are - €82 million. Eurocommercial Properties 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. Companies with this type of growth tend to be financially secure and have proven themselves over time. Eurocommercial Properties' earnings were negative in 2013. 

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. Eurocommercial Properties' E/P of 6% (using this years estimated Earnings) fails 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. Eurocommercial Properties has a Graham number of (15 x €2,5 EPS x 1,5 x €32 Book Value) = €42,7 

Dividend: €2/€40 = 5% ?  

Conclusion: Eurocommercial Properties has a lot of debt (which is normal for real estate companies) and good dividend. The Earnings Yield is low.  This might be a buy at 35 Euros.

See www.beterinbeleggen.nl for valuation of great companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

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