Wednesday, November 02, 2016

KAS Bank intrinsic value using Graham Number


KAS Bank 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: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. KAS Bank's sales of €100 million, based on 2015 sales, fails 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. 
KAS Bank 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 
KAS Bank haven't increased in the last 5 years including the first 3 quarters of 2016 therefore the company fails this criterion. 

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.
KAS Bank's E/P of 4% using earning per share estimate of this year of 0,3 Euros.

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. KAS Bank has a Graham number of (15 x €0,8 EPS x 1,5 x €14 Book Value) = €11,9

Dividend: Usually about 60 cents. 0,60/8,26 = 7%

Conclusion: KAS Bank is having a tough year. The stock price seems low, so it might be worthwhile to do some research to see whether a return to earnings over 1 Euro per share and a high dividend are in the cards for the coming years. Not a stock for the Defensive Investor.

Voor een gratis ebook over Graham z'n meest succesvolle pupil zie:  

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