Thursday, September 06, 2018

BinckBank turning the corner ? Binck higher stock price and higher intrinsic value

Since 2007 Binck's price and value have seemed to be decreasing. "Mr. Market's" mood swings (stock price volatility) has been greater than the steady decline in value.

In 2018 BinckBank has lowered expenses by stopping some activities while growing revenues in the remaining business. This has led to a substantial increase in bottom line profits.

Graham Analysis:

SECTOR: [FAIL] Binck  is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks are considered too risky to invest in. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales 
greater than €260 million. Binck's sales of €149 million, based on 2017 sales, fails 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. Binck's Earnings per share have declined over that period and fails the EPS growth 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. Binck's E/P of 7% (using the average of the past 3  year's 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. Binck has a Graham number of (15 x EUR 0,42 EPS x 1,5 x EUR 5,9 Book Value) = €7,5

Dividend? 50% of Net Income: 0,26/5,3 = 5%

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