Tuesday, March 28, 2017

SBM Offshore intrinsic value estimate

Note: I don't understand the numbers "directional" vs IFRS and reporting in $s for a Euro stock.

SECTOR: [PASS]  SBM 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. SBM's sales of €2,013 million, based on 2016 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. SBM's current ratio $1,965m/$1,760m 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 SBM is €6,215 million, while the net current assets are €205 million. SBM 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. SBM's EPS were negative in 2011 and 2012 therefore SBM 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. SBM's E/P of 50% (using the current 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. SBM has a Graham number of (15 x €0,7 EPS x 1,5 x €11 Book Value) = €12,8

Dividend= €0,2/€14,8 = 1,3%

SBM Offshore is not a company for the Graham Defensive investor and at €10 last year, it was more attractive than today at €14,85.

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

No comments: