Monday, December 10, 2018

VolkerWessels stock price is lower than intrinsic value

VolkerWessels and BAM have been building the OpenIJ locks project for a fixed price. They have made a loss on this project, but it seems Mr. Market is too negative at the moment. In general, the company is doing well and has an all-time high order book of future revenue.

SECTOR: [PASS] VolkerWessels is a group of Dutch companies involved mostly in construction. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. VolkerWessels' sales of €5 714 million in 2017 passes this test.

[FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. VolkerWessels' current ratio €2 395m/€2 245m of 1,1 fails this 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 VolkerWessels is €305 million, while the net current assets are  €150 million. VolkerWessels fails this test.

LONG-TERM EPS GROWTH: [PASS] [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. I don't have enough earnings history for VolkerWessels to measure this factor. 

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. VolkerWessels' E/P of 12% (using an average of 3 year's estimated Earnings) 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. VolkerWessels has a Graham number of (15 x €1,6 EPS x 1,5 x €13,6 Book Value) = €22 

Dividend: €1,05/€13,3 = 8% 

Conclusion 2018: Like a number of other Dutch stocks, VolkerWessels seems inexpensive at this moment. You can buy a Euro of Value for 60 Cents.

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