Friday, May 26, 2017

Air France KLM intrinsic value increase

Last year, Air France KLM didn't seem like a buy, but earnings, book value and stock price all went up, but sales have not increased.

SECTOR: [PASS] AF 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. AF's sales of €24 846 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. AF's current ratio of €7 607m/€9 487m of 0.8 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 AF is €7,703 million, while the net current assets are €-1 880 million. AF 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. EPS for AF were negative in many of the past years and therefore the company fails this criterion.

[PASS] 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. AF's Earnings Yield is 17% this year and has made a loss over the past 3 years.

[PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price and is at 11,4 Euros. 


Conclusion: Too difficult pile.

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