Tuesday, May 23, 2017

Aegon intrinsic value and stock price have both decreased

SECTOR: FAIL AEGON is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published even decades ago. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: PASS The investor must select companies of "adequate size". This includes companies with annual sales greater than 260 million Euros. AEGON's sales of  11 956 million, based on trailing 12 month 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. AEGON is a financial stock so the current ratio analysis cannot be applied and this criterion cannot be evaluated.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: FAIL Long term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organization. AEGON is a financial stock so this variable is not applicable and this criterion cannot be evaluated.

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. EPS for AEGON were negative in 2008 and have declined 86% since 2006.

P/E RATIO: FAIL The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. AEGON's E/P Earnings Yield of 6,5% just fails this test.


The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. AEGONS's Price/Book ratio is 0,4. The Graham Number is 9,56 Euros.

DIVIDEND: AEGON pays a dividend of 0,26/4,47 = 6%.

Conclusion: Not expensive, but doesn't pass enough of the Graham screen metrics to be a buy. I might have been wrong last year: http://sinaas.blogspot.nl/2016/04/aegon-cheap-again-intrinsic-value.html

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

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