Thursday, June 01, 2017

Brunel International intrinsic value has been hit by low Oil & Gas employment

Brunel provides business services specialising in flexible deployment of professionals in the field of Engineering, Aerospace, Automotive, ICT, Finance, Legal, Insurance & Banking and all disciplines in the Oil & Gas industry. 

Benjamin Graham analysis:

SECTOR: [PASS]  Brunel 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. Brunel's sales of €884 million, based on 2016 sales, passes 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. Brunel's current ratio €363m/€104m of 3.5 is very good.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]  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 Brunel is €1,5 million, while the net current assets are €259 million. Brunel passes 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. Brunel's earnings have not increased over the past ten years.

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. Brunel's E/P of 1% (using last years estimated 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. Brunel has a Graham number of (15 x €0,5 EPS x 1,5 x €5,8 Book Value) = €8,2 

Dividend: €0,40/€14 = 3%  

Conclusion: Brunel has a strong balance sheet. The business is not capital intensive so it will not have a high book value compared to share price. Business is bad due to the low oil price. Results are expected to improve. 14 Euros on June 1st 2017 might be a good price to buy.

See: for more in depth, qualitative analysis of "good" companies.

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