Tuesday, May 08, 2018

Neways Electronics intrinsic value estimate, now Oct 2018 at EUR 10 seems like a good time to buy.

Value Investing theory:

Neways practice: Buy?

Newways is providing a trading updat this week on October 30th. The half year 2018 results were good.

SECTOR: [PASS]  Neways is in electronic manufacturing services (EMS) 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. Neways' sales of €439 million, based on 2017 sales, passes 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. Neways' current ratio €179m/€132m of 1.4 fails the 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 for Neways is €7,4 million, while the net
current assets are €47 millionNeways passes 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. Neways made a loss in 2012.

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. Neways' E/P of 10% (using average of last 2 years earnings and an estimate for 2018) 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. Neways has a Graham number of (15 x €0,9 EPS x 1,5 x €7,4 Book Value) = €12,61 and PASSES this test.

DIVIDEND €0,35/€10 = 3,5%

Conclusion: Neways seems like a good buy if the price is EUR 10 tomorrow? 

Note: VDL owns 26% of the shares and might do a buyout if the share price goes low enough? A number of Dutch stocks seem cheap at the moment.

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

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

2 comments:

Hendrik-Jan said...

You say [Pass] for the Graham Number value, but at the end you conclude that €12,61 fails that test.

Ansgar John said...

Thanks! Price is €10 and Graham Value is €12,6. I have replaced "fails" with "passes".