ING stock intrinsic value Benjamin Graham valuation

The Intelligent Investor by Benjamin Graham, was first published in 1949. The Graham Defensive Stock Screen used here, was described in Chapter 14 of that book. It is fascinating for me to see how many stock prices follow the simple geometric average calculation of 1,5x Book Value and 15x Earnings per Share of the Graham Number. See https://en.wikipedia.org/wiki/Graham_number

The value of ING seems to be between 15 and 20 Euros, if you could buy it for less than 10 Euros as was possible in 2013 (see below), you would probably be getting a good deal. As Graham said: "In the short term the stock market is a voting machine, in the long term it is a weighing machine,"

SECTOR: [FAIL] 

ING is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks are considered too risky to invest in. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ING's sales of €15,296 million, based on 2014 sales, pass this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] Long term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organization. ING is a financial stock so this variable is not applicable and this criterion cannot be evaluated.

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 ING haven't increased in the last 5 years and have been negative in the last 10 years therefore the company fails this criterion. 

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. ING's E/P of 9% using earning per share estimate of €1,06.

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. ING has a Graham number of √(15 x €0,9 EPS x 1,5 x €12,42 Book Value) = €15,9

Voor een gratis ebook over Graham z'n meest succesvolle pupil zie: http://www.warrenbuffett.nl/  

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