Sunday, June 04, 2017

Eurocommercial Properties: A Margin of Safety between intrinsic Value and Price ?

Eurocommercial Properties owns store real estate in Sweden, France and Italy. Retail sales are growing in those countries in 2016 and 2017. I am not an expert, but the price seems low at the moment.

Conclusion August 2016 when the price was around 40 euros: "Eurocommercial Properties has a lot of debt (which is normal for real estate companies) and good dividend. The Earnings Yield is low.  This might be a buy at 35 Euros."

SECTOR: [PASS]  Eurocommercial Properties  is a real estate company. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Eurocommercial Properties' sales of €206 million, based on 2016 sales, just 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. Eurocommercial Properties' current ratio €177m/€262m of 0,7 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 Eurocommercial Properties is €1 497 million, while the net current assets are - €85 million. Eurocommercial Properties 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. Eurocommercial Properties' earnings were negative in 2013. 

Earnings Yield: [PASS] 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. Eurocommercial Properties' E/P of 11% (using 4 Euros Earnings per share) passes this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Eurocommercial Properties has a Graham number of (15 x €4 EPS x 1,5 x €38 Book Value) = €60 

Dividend: €2,05/€37 = 6% ?  

See for in-depth analysis of quality companies.

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