Sunday, October 07, 2018

ForFarmers intrinsic value estimate

ForFarmers is a company that used to be a co-op that went public a few years ago.

SECTOR: [PASS]  ForFarmers is in the animal feed sector. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ForFarmers' sales of €2 219 million, based on 2017 sales, pass this test.

[FAIL] [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. ForFarmers' current ratio €442m/€273m of 1.6 just 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 forForFarmers is €96 million, while the net current assets are €169 million. ForFarmers passes this test.

LONG-TERM EPS GROWTH: [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. ForFarmers' earnings have increased 70% since 2013.

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. ForFarmers' E/P of 7% (using this year's estimatedEarnings) passes 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. ForFarmers has a Graham number of (15 x €0,62 EPS x 1,5 x €4,14 Book Value) = €7,6

Dividend: €0.3/€9.6 = 3% and increasing.

Conclusion: ForFarmers seems fairly priced today at €9,6

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