Tuesday, May 31, 2016

Beter Bed Holding Intrinsic Value Calculation Graham Defensive Screen AEX:BBED, NL0000339703

SECTOR: [PASS]  Beter Bed is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must s0elect companies of "adequate size". This includes companies with annual sales greater than €260 million. Beter Bed's sales of €385 million, based on 2015 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. Beter Bed's current ratio €92m/€53m of 1.7 fails this 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 Beter Bed is €2 million, while the net current assets are €39 million. Beter Bed 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. Beter Bed's earnings have decreased slightly over the past ten years.

Earnings Yield: [FAIL] 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. Beter Bed's E/P of 5% (using this years Earnings) fails this test.

Graham Number value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Beter Bed has a Graham number of (15 x €0,9 EPS x 1,5 x €3,46 Book Value) = €8,1 

Dividend: €0,87/€20 = 4% 

Conclusion: Beter Bed seems pretty expensive at the moment. As a retailer that rents buildings instead of owning them it has a low Book Value. Maybe a Buy around 15x Earnings -> 15 Euros. 

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

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

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