Wednesday, May 23, 2018
ABN Amro intrinsic value using Benjamin Graham Defensive method
SECTOR: is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published even decades ago. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.
SALES: The investor must select companies of "adequate size". This includes companies with annual sales greater than 260 million Euros. Operating Income of , based on 2017 figures, passes this test.
CURRENT RATIO: The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. is a financial stock so the current ratio analysis cannot be applied and this criterion cannot be evaluated.
LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: Long term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organization. is a financial stock so this variable is not applicable and this criterion cannot be evaluated.
LONG-TERM EPS GROWTH: 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. EPS for
Earnings Yield: The Earnings/Price (E/P) ratio, based on the lesser of the current E/P or the E/P using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,6%. Stocks with high Earnings Yields are more defensive by nature. of passes this test.
GRAHAM NUMBER: The geometric average of 1,5 x book value and 15 x EPS is the Square Root of 1,5 x 22,8 Euros x 15 x 2,5 Euros = 35,7 Euros.
DIVIDEND: ABN AMRO pays a dividend of 50% of earnings, was 1,45/24,3 = 6%.
Conclusion: Price is not as good as 14 Euros after Brexit vote in 2016, but ABN Amro still looks like a "BUY". (Note: I don't understand banking.)
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