Thursday, April 26, 2018

NN Group successful takeover of Delta Lloyd?

A little over a year ago I suggested buying NN Group: since then the price has increased 25% and the (Graham) Value has increased as well. Many corporate mergers don't add value, could the NN acquisition of Delta Lloyd be an exception?

SECTOR: [FAIL] NN is an insurance company and therefore this methodology is not applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. NN's sales (premiums) of €12 064 million, based on 2017 sales, passes this test.

CURRENT RATIO:  not applicable. 


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. NN does not have a long enough track record as an independent company. The IPO was in 2014.

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. NN's E/P of 12% (using the average of last 3 years earnings) 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. NN has a Graham number of (15 x €5,7 EPS x 1,5 x €42* Book Value) = €73 and passes this test. 

(* Note: It is not quite clear to me what the book value per share is for NN: Equity of €24 000m / 333m shares outstanding is €74 on "intrinsieke waarde per aandeel" 2016 is €35 ?? )

DIVIDEND €1,70/€39 = 4,4%

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

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