Monday, November 07, 2016

Koninklijke Brill Scholarly Publishing Intrinsic Value

Founded in 1683, Brill is a publishing house with a rich history and a strong international focus. The company’s head office is in Leiden, (The Netherlands) with a branch office in Boston, Massachusetts (USA). Brill was listed at the Amsterdam Stock exchange in 1896.

SECTOR: [PASS]  Brill is in publishing and passes this test. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million.
Brill's sales of €31 million, based on 2015 sales, fails this test.

CURRENT RATIO:  [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. 
Brill's current ratio €22,7m/€12,5m of 1,8 is very close and in combination with no long term debt passes this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] 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 
Brill is €0 million, while the net current assets are €10 million. Brill passes this test.

[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. Brill's earnings have not increased during the past 5 years, but I don't have the figures from 10 years ago.

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. Brill's E/P of 5% (using the average of the last 3 years or last year's 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. Brill has a Graham number of (15 x €1,3 EPS x 1,5 x €14,50 Book Value) = €20,4

Dividend: €1,2/€26 = 5% 

Brill has a strong balance sheet and pays a good dividend, but seems a bit expensive for the Defensive Investor at a price of €26 in November 2016. 

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

Comments, questions or E-mails welcome:

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