Monday, May 29, 2017

Advanced Metallurgical Group AMG intrinsic value increase


AMG went public in 2007 for 24 Euros and the price went up to 29 Euros on the first day and increased to 50 Euros within a year, allowing its biggest shareholder to sell at attractive prices:

Currently the company is firing on all cylinders, so in hindsight last year's share price was not as expensive as I thought. 

Graham Defensive Analysis

SECTOR: [PASS] AMG 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. AMG's sales of €965 million, based on 2016 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. AMG's current ratio €530m/€259m of 2.0 almost passes 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 meet this criterion display one of the attributes of a financially secure organization. The long-term debt for AMG is €312 million, while the net current assets are €271 million. AMG 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. AMG's EPS were negative in 2013, AMG 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. AMG's E/P of 5% (using the average of last 3 years) 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. AMG has a Graham number of √(15 x €1,6 EPS x 1,5 x €7 Book Value) = €16

Dividend: €0,27/25 = 1 %

Conclusion: AMG is not a stock for the Defensive Investor, but the intrinsic value has been increasing.

Comments, questions or E-mails welcome:

No comments: