Monday, October 22, 2018


The KAS BANK has a new office and has outsourced IT. Profits have fallen sharply and the outlook isn't very positive. The Graham Value is relatively high because the book value per stock is EUR 14. 

Last year I wrote: "Conclusion July 9th 2017: KAS BANK seems cheap no at €9,6 based on the high dividend and good results in Q1 2017." I was wrong. 

SECTOR: [FAIL]  KAS Bank 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. KAS Bank's sales of €106 million, based on 2016 sales, fails this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] Long-term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organisation. 
KAS Bank is a financial stock so this variable is not applicable and this criterion cannot be evaluated.

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. EPS for 
KAS Bank haven't increased in the last 5 years including the first 3 quarters of 2016, therefore, the company fails this criterion. 

[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. KAS Bank's E/P of 10% using earning per share of the past 3 years 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. KAS Bank has a Graham number of (15 x €0,8 EPS x 1,5 x €14 Book Value) = €16

Dividend:  €0,42 / €6,9 = 6%

Conclusion 2018: ?? The stock still isn't expensive, but not a pick for the Graham Defensive investor due to declining business over the years.

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