Sunday, June 04, 2017

DPA intrinsic value Benjamin Graham valuation

SECTOR: [PASS]  DPA  is a HR service company. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. DPA's sales of €126 million, based on 2016 sales, fails 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. DPA's current ratio €29m/€37m of 0,8 is too low.

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 DPA is €7,5 million, while the net current assets are - €8 million. DPA 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. DPA's earnings were negative between 2006 and 2011. 

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. DPA's E/P of 6% (using this 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. DPA has a Graham number of (15 x €0,12 EPS x 1,5 x €1,7 Book Value) = €1,7 

Dividend: €0.06/€1,7 = 4%   

Conclusion: DPA is having a tough 2017 due to changes in the law and is not a stock for the Defensive Investor. 

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