Tuesday, September 11, 2018

Coca-Cola European Partners intrinsic value

Last June I wrote: Conclusion: Coca-Cola European Partners is not cheap around 37 Euros per share. Buy under 30 ? 

This February the price dipped under EUR 30 and is now back to EUR 37,14.
What strikes me today is that Coca-Cola European Partners is such a big company with 24 000 employees.

SECTOR: [PASS]  Coca-Cola European Partners is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Coca-Cola European Partners' sales of €11 062 million, based on 2017 sales, pass 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. Coca-Cola European Partners's current ratio €3 795m/€3 720m of 1.0 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL]  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 Coca-Cola European Partners is €8 070 million, while the net current assets are €75 million. Coca-Cola European Partners fails this test.

LONG-TERM EPS GROWTH: [FAIL] [PASS] 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. Coca-Cola European Partners just went public two years after a merger.

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. Coca-Cola European Partners's E/P of 4% (using the last year's 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. Coca-Cola European Partners has a Graham number of (15 x €1,5 EPS x €14 Book Value) = €22 

Dividend: €1,04/€37 = 3%

Conclusion 2018: Coca-Cola European Partners is not cheap at around 37 Euros per share. Buy under 30?

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