Wednesday, September 05, 2018

Beter Bed an opportunity for the adventurous investor?

In 2016 I looked at Beter Bed through the eyes of a Graham Defensive Investor:

2016 Conclusion was: "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. " 

Since then the price of a Beter Bed share has decreased from EUR 20 to EUR 5. An opportunity?

The company appointed a new CEO, John Kruijssen, April 2018. He has a discount supermarket background as former CEO of Dirk (Detailresult).

The company booked a loss in the first half of 2018 mostly due to problems outside The Netherlands.

Although the holding is called "Beter Bed" most of the stores are Matratzen Concord in the DACH countries. 

Cancer-inducing beds?

During a few weeks between in September 2017 chemical company BASF accidentally produced polyurethane foam with dichlorobenzene. Some of it was used to produce foam for matresses... 
Not good for your reputation as a mattress/bed retailer...

2018 warmest summer in German, increasing online competition and lousy management?

Management in Germany has been sent home and new people have been hired, that cost EUR 4m.

The company just booked a loss of EUR 6m. Book value (equity) = EUR 62m

I don't know if they can return to profitability, if they do, the shares are currently cheap.

Graham Defensive Analysis:

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 €416 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. Beter Bed's current ratio €85m/€82m of 1.0 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 €0 million, while the net current assets are €3 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 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 0% (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 €0,3 EPS x 1,5 x €2,8 Book Value) = €4,3 

Dividend in the past divided by price today: €0,87/€5 = 17% Current dividend = EUR 0,0

Conclusion September 2018: Beter Bed seems cheap, maybe a pick for the adventurous investor. Not a company for the Defensive Investor.

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Comments, questions or E-mails welcome:

PS: Is it possible that the average Matratzen Concord stores has sales of only EUR 200 000,- per year? Or is my math off by a ZERO?

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