Fugro buy recommendation 2014 turned out to be mistake

2 years ago in September 2014 I wrote: http://sinaas.blogspot.nl/2014/09/fugro-for-sale-at-40-discount-to-graham.html 

The Benjamin Graham graph looked like this: 

Fugro passed all the criteria, except debt: current ratio and long term debt. The oil tide has since gone out and business has been very slow, forcing Fugro to sell assets to pay down debt, because banks link debt to earnings not assets. At a certain point there was a Fugro panic and the stock fell to €9 and insider buying and buying by Boskalis drove the stock above €20, but now it has fallen together with the Graham value. If (when?) the oil market picks up, results should improve at Fugro, but damage has been done.  

 SECTOR: [PASS]  Fugro 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. Fugro's sales of €2,379 million, based on 2015 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. Fugro's current ratio €1,172m/€705m of 1.7 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 Fugro is €825 million, while the net current assets are €467 million. Fugro 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. Fugro's EPS have been negative over the past years, Fugro fails this 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. Fugro's E/P of 4% (using the average of last 3 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. Fugro has a Graham number of √(22,5 x €0,6 EPS x €14 Book Value) = €12,7 and fails this test.

Conclusion: I was wrong. 

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

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