Wednesday, October 10, 2018

Heijmans intrinsic value using Benjamin Graham Defensive Analysis

SECTOR: [PASS]  HEIJMANS 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. HEIJMANS's sales of €1 500 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. HEIJMANS's current ratio €542m/€575m of 0.9 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 HEIJMANS is €74 million and has been decreasing, while the net current assets are negativeHEIJMANS 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. HEIJMANS's earnings have declined and were negative in 2014, 2015 and 2016 and thus 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. HEIJMANS's E/P of  7% (using last years earnings) passes this test.

Graham Number value: [FAIL] [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. HEIJMANS has a Graham number of (22,5 x €0,7 EPS x €7,6 Book Value) = €11,2

NO Dividend and Heijmans has been selling millions of extra shares over the past years to fund its losses.

Conclusion: Business has been improving, but Heijmans is not a stock for the defensive investor because the company isn't consistently profitable and has too much debt. 

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