**SECTOR:**[PASS]

**Hydratec**is a small conglomerate of industrial systems and components companies.

#

**SALES: **[FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. **Hydratec's** sales of** €160 million**, based on 2016 sales estimates, 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. **Hydratec's** current ratio €58m/€55m of 1,1** 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 **Hydratec **is **€18 million**, while the net current assets are **€3** million. **Hydratec 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. Hydratec's earnings per share have increased 140% since 2006.

**Earnings Yield: **[PASS] 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. **Hydratec's **E/P of 8**%** (using this years estimated Earnings) passes 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. **Hydratec**** **has a Graham number of √(15 x €4,3 EPS x 1,5 x €37 Book Value) = €58

Dividend: €1,37/€46 = 3% ?

**SALES:**[FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million.

**Hydratec's**sales of

**€160 million**, based on 2016 sales estimates, 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.

**Hydratec's**current ratio €58m/€55m of 1,1

**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

**Hydratec**is

**€18 million**, while the net current assets are

**€3**million.

**Hydratec 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. Hydratec's earnings per share have increased 140% since 2006.

**Earnings Yield:**[PASS] 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.

**Hydratec's**E/P of 8

**%**(using this years estimated Earnings) passes 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.

**Hydratec**

**has a Graham number of √(15 x €4,3 EPS x 1,5 x €37 Book Value) = €58**

Dividend: €1,37/€46 = 3% ?

Conclusion: Hydratec is steadily increasing in value and the stock is not expensive, but the margin of safety (korting) is getting smaller. There have been a number of take-overs and sales of companies recently, so the underlying cash flow of the current companies should be looked at closely. In 2015 profit per share was €8,82, so you may think the PE is $46/$8,82 = 5 but €6,30 of last year's EPS was attributable to one off transactions. This year's (2016) earnings should be around €4 per share.

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

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

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