Friday, June 22, 2018

AFC Ajax and Invesco, not a bad investment

Last year I wrote about Invesco owning Ajax shares. The Value of Ajax seemed to be higher than the Price and both have increased since then: http://sinaas.blogspot.com/2017/05/ajax-football-club-intrinsic-value.html

I don't know how Ajax will do financially this year or next. Here is the Benjamin Graham Defensive analysis.  The price seems very reasonable:

Last year Ajax paid out a dividend of 24 cents per share, which surprised me a little. I thought they would spend profits on trying to win more games instead of returning capital to shareholders.

Here a simple Graham analysis:

SECTOR: [PASS]  AJAX 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. AJAX's sales of €118 million, based on 2017 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. AJAX's current ratio €148m/€72m of 2.1 passes 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 AJAX is €15 million, while the net current assets are €76 million. AJAX 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. AJAX made a small loss in 2015  and thus fails the test.

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. AJAX's E/P of 11% (using the average of 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. AJAX has a Graham number of (15 x €1,5 EPS x 1,5 x €8,6 Book Value) = €17 

Dividend 2017/2017 24 cents/12 = 2%

Comments, questions or E-mails welcome: ajb@valuemachinesfund.nl

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