Thursday, September 07, 2017

Lucas Bols and the Lindy Effect; Price is currently equal to Value?

Lucas Bols is an old brand, so chances are it will still exist 7 years from now:

SECTOR: [PASS] Lucas Bols is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Lucas Bols' sales of €81 million, based on 2016 sales, fails 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. Lucas Bols' current ratio €21m/€4m of 5 passes this 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 Lucas Bols is €163 million ? (it is not exactly clear to me what the debit is, it seems to have increased as part of a deal to sell Passoa), while the net
current assets are €17 millionLucas Bols fails this test.

LONG-TERM EPS GROWTH: [PASS] [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. Lucas Bols' EPS growth over that period is a number we don't have because the IPO was in 2015.

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. Lucas Bols' E/P of 6,3% (using last years earnings) just fails 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. Lucas Bols has a Graham number of (15 x €1,07 EPS x 1,5 x €13,7 Book Value) = €18,9 and passes this test.

DIVIDEND €0,57/€18,9 = 3%

Conclusion: Lucas Bols seems fairly priced just above €18,9. Little margin of safety at the moment.

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

Comments, questions or E-mails welcome:

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