Saturday, May 19, 2018

Wereldhave and Mr. Market's mood swings?


Wereldhave cut the dividend from €3,08 to €2,52 and also booked less profit in 2017 due to revaluation impairments.

It is hard to imagine that the same shopping malls have gone up in value from €50 to €70 and down to €30 in a few years.

It seems like you can buy a €uro for around 60 cents.

SECTOR: [PASS]  Wereldhave is a store real estate company. 


SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Wereldhave's income of €264 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. Wereldhave's current ratio €86m/€175m of 0,5 is too low.

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 Wereldhave is €1 632 million, while the net current assets are - €89 million. Wereldhave fails this test.

LONG-TERM EPS GROWTH: [PASS] 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. Wereldhave's earnings have grown over the past 5 years. 

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. Wereldhave's E/P of 7,3% (using this year's estimated Earnings averaged with the past 2 years) 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. Wereldhave has a Graham number of (15 x €2,5 EPS x 1,5 x €48 Book Value) = €52 

Dividend: €2,52/€33 = 8% 


Conclusion: Wereldhave has a lot of debt (which is normal for real estate companies) and good dividend.  This might be a buy. Rotterdam real estate baron Aat van Herk agrees.

See www.beterinbeleggen.nl for valuation of great companies.

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

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