Wednesday, July 18, 2018

AND (Automotive Navigation Data) 2018 intrinsic value and price update

One year ago
A little over a year ago I wrote: " Conclusion: AND is very small and has been growing. 2015's profit was partly non cash, but business was good in 2016 and the company now expects to sell in North America. Not a stock for the Defensive Investor, because of the company's small size and reliance on a limited number of clients."

Since then existing sales have collapsed and North American sales failed to appear. AND had sales of only EUR 1,4 million (with an "m") in 2017 and 100 employees. That is sales of EUR 14 000 per employee. It has now had to close its operations in India. If it had a lot of debt, it might be bankrupt.

SECTOR: [PASS]  AND 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. AND's sales of only €1,4 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. AND's current ratio €4,6m/€0,9m of 5 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 AND is €0,23 million, while the net current assets are €4 million. AND 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. AND lost money in 2017 and fails this test. 

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. AND's E/P of 0% (using last 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. AND has a Graham number of (15 x €0,13 EPS x 1,5 x €4,5 Book Value) = €3,2 

Dividend: €0

Conclusion: It is difficult to say how the company will do in the future. Still not an investment for the Graham Defensive investors even if the share price falls further.

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