Monday, October 17, 2016
Internatio-Müller Chemical Distribution aka IMCD intrinsic value vs market cap and stock price
Internatio-Müller Chemical Distribution (IMCD) is the sister company of IMtech (which went bankrupt). Bain Capital bought IMCD for €610m in 2010 and the market cap now, after coming back to the stock exchange again in 2014, is € 2 130m.
SECTOR: [PASS] IMCD 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. IMCD's sales of €1 537 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. IMCD's current ratio €481m/€283m 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 IMCD is €495 million, while the net current assets are €198 million. IMCD 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. IMCD's EPS were negative in 2012 and 2013 so the company 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. IMCD's E/P of 3% (using the average over 3 years) 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. IMCD has a Graham number of √(15 x €1,3 EPS x 1,5 x €13 Book Value) = €19 and fails this test.
Dividend: 0,44 E / 40,41 E = 1% and increasing.
Conclusion: Bain probably wouldn't buy the company now for 3,5x the price it paid in 2010.
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