Monday, February 27, 2017

Benjamin Graham valuation of Oranjewoud intrinsic value

SECTOR: [PASS]  Oranjewoud 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. Oranjewoud's sales of €2 307 million, based on 2015 sales, passes 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. Oranjewoud's current ratio €1 266m/€1 186m of 1.1 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 Oranjewoud is €215 million, while the net
current assets are €80 millionOranjewoud 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. LOranjewoud's made a loss in 2013 and 2014.

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. Oranjewoud's E/P of 5% (using average of last 2 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. Oranjewoud has a Graham number of (15 x €0,20 EPS x 1,5 x €4,2 Book Value) = €4,4 and fails this test.


Conclusion: Oranjewoud is not a stock for the Defensive Investor.

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