Thursday, August 30, 2018

BE Semiconductor BESI intrinsic value Graham Defensive perspective

May 2nd 2018, just before stock split and lowered forecast for 2018.

BESI had a fantastic 2017, but maybe the share price increase was a bit too much?

Yes. Sales (and profits) are expected to decline by a third or more in the second half of 2018 due to missed orders. Besi had a two-for-one stock split on May 7th 2018.

Benjamin Graham Defensive Analysis:

SECTOR:  [FAIL]  BESI is in the Technology 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. At that time they were not the driving force of the market as they are today. Although this methodology would avoid BESI, we will provide the rest of the analysis, as we feel times have changed.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. BESI's sales of €592 million, based on 2017 sales, passes 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. BESI's current ratio €762m/€146m of 5,2 passethis test with flying colors.

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 BESI is €294 million, while the net current assets are €616 million. BESI 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. BESI's earnings were negative in 2012, so it fails this 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. BESI's E/P of 7,6% (over last years earnings of 4,64 Euros a share ) passes this test. The Earnings Yield over the average of the past 3 years passes this test: 8%.

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. BESI has a Graham number of (15 x €1.7 EPS x 1,5 x €6.25 Book Value) = €16,-

Earnings Value (Peter Lynch line) : 1.7 Euros x 15 = 25,5 Euros.

Possible Dividend?: €2,3/€19 = 12% and has been shareholder friendly over the years and is doing a share buyback. 

Note: I haven't done much homework and don't understand the business. It hasn't been consistently profitable in the past.

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

Comments, questions or E-mails welcome:

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