Saturday, July 15, 2017

Koninklijke BAM Groep intrinsic value using Graham Number BAMNB

SECTOR: [PASS]  BAM 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. BAM's sales of €6 976 million, based on 2016 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. BAM's current ratio €3 366m/€3 176m of 1.1 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 BAM is €510 million, while the net
current assets are €190 million. BAM 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. BAM's earnings have declined and were negative in 2012 and thus fails the EPS growth test.

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. BAM's E/P of 2% using last years 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. BAM has a Graham number of (22,5 x €0,12 EPS x €3,09 Book Value) = €2,9

DIVIDEND = 0,09 / 4,95 = 2% 

Conclusion BAM is only marginally profitable at the moment. There is no margin of safety if you buy now. Not a stock for the Defensive Investor.

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