Monday, November 12, 2018

Snowworld intrinsic value and offer

Marc Coucke owns 83% of Snowworld through his holding Alychlo. He had to make an offer to buy all the shares and he set the price at EUR 9,50 last year. See green line in the graph below: Since then business hasn't been good due to great weather in the Netherlands, discouraging people from spending time indoors.

Currently, the price is EUR 8,80 but that doesn't mean you can buy a lot of shares at that price, the volume traded is very low. The offer price and today's stock price both seem reasonable.

SECTOR: [PASS]  SnowWorld is in retail and food service and neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. SnowWorld's sales of €28 million, based on 2017 sales, fails 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. SnowWorld's current ratio $1,6m/$12,7 of 0.1 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 SnowWorld is €32 million, while the net current assets are - €11 million. SnowWorld fails 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. SnowWorld EPS grew by 42% over the past 4 years and passes this 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. SnowWorld's E/P of  8% (using the current Earnings) 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. SnowWorld has a Graham number of (15 x €0,7 EPS x 1,5 x €4,8 Book Value) = €8,8

Dividend: 0,4/8,8 = 5%

Conclusion: The shares seem fairly priced, but there is too much debt for a Graham Defensive Investor. It is not clear to me whether Alychlo will make another offer. If it is at EUR 9,5 then there is an 8% upside from the current price.

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