Tuesday, November 08, 2016

Koninklijke DSM intrinsic value based on Benjamin Graham math

SECTOR: [PASS] DSM 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. DSM's sales of €8,935 million, based on 2015 sales, pass 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. DSM's current ratio €5,153m/€2,373m of 2.2 passes this 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 meet this criterion display one of the attributes of a financially secure organization. The long-term debt for DSM is €3,600 million, while the net current assets are $2,780 million. DSM 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. DSM's EPS decline of 20% 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. DSM's E/P of 2% (using the last years 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. DSM has a Graham number of (22,5 x €1,1 EPS x €32 Book Value) = €28,5 and fails this test.

Dividend: DSM pays a dividend of 1,65/56.62= 3%

Conclusion: Trader's who bought at 40 Euros in 2015 and sold around 60 Euros in 2016, would have done well, but in the long term DSM hasn't been a great investment and the price seems high at the moment.

See www.beterinbeleggen.nl   

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

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