Wednesday, April 05, 2017

Sligro intrinsic value

SECTOR: [PASS]  Sligro is in retail and food service and 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. Sligro's sales of €2 817 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. Sligro's current ratio $545m/$452m of 1.2 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 Sligro is €103 million, while the net current assets are  €93 million. Sligro 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. Sligro EPS grew by 13% over the past 10 years and 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. Sligro's E/P of  5% (using the current Earnings) fails this test.

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. Sligro has a Graham number of (15 x €1,7 EPS x 1,5 x €33 Book Value) = €35,5

Dividend= €1,30/€35 = 3,7%

It is interesting to see how Sligro's price fluctuates around its Graham value. Currently at 35,29 Euros there is no margin of safety for the Graham Defensive investor.

See: for more in depth, qualitative analysis in Dutch.

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