Sunday, June 04, 2017

ForFarmers update Price and intrinsic Value from a Benjamin Graham perspective

 Conclusion from half a year ago September 2016:


"ForFarmers seems like a good stock for the defensive Intelligent Investor. Graham intrinsic value.

ForFarmers has a strong balance sheet, an easy to understand business and seems like a good pick for the Defensive Investor at a price of €6,08 in September 2016."

Since then the Value of ForFarmers has increased a little bit, whilst the Price has gone up 66%.

Chart of Price and Value today: 


ForFarmers is a company that used to be a co-op that recently went public.

SECTOR: [PASS]  ForFarmers is in the animal feed sector. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ForFarmers' sales of €2 113 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. ForFarmers' current ratio €443m/€213m of 2.3 passes this test.

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 forForFarmers is €129 million, while the net current assets are €230 million. ForFarmers passes this test.

LONG-TERM EPS GROWTH: [PASS] 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. ForFarmers' earnings have increased 70% since 2013.

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. ForFarmers' E/P of 5% (using last year's Earnings) passes 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. ForFarmers has a Graham number of (15 x €0,52 EPS x 1,5 x €4,1 Book Value) = €6,9 

Dividend: €0.24/€10= 2,4%

ForFarmers decided to buyback shares, but haven't indicated up to what price they want to do that. If the price increases significantly from here, maybe they should stop the share repurchase program. 
See: for more in depth, qualitative analysis of "good" companies.

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