Thursday, February 21, 2019

Wereldhave adjusted Graham Intrinsic Value

Conclusion last year: Wereldhave cut the dividend from €3,08 to €2,52 and also booked less profit in 2017 due to revaluation impairments. It is hard to imagine that the same shopping malls have gone up in value from €50 to €70 and down to €30 in a few years. It seems like you can buy a €uro for around 60 cents. See chart below. Since then the stock price has fallen. I believe that for real estate it doesn't make sense to multiply the book value x 1,5 (Graham Formula) so now I used Square Root of (15 x Earnings per Share x 1 x Book Value per Share). 
Conclusion February 2019: Both estimated value and stock price have fallen. You can still buy a $ for 60 cents. 

SECTOR: [PASS]  Wereldhave is a store real estate company. 

SALES: The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Wereldhave's income of €232 million, based on 2019 sales, just 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. Wereldhave's current ratio €457m/€1925m of 0,4 is too low.

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 Wereldhave is €1 076 million, while the net current assets are - €265 million. Wereldhave fails this test.

LONG-TERM EPS GROWTHCompanies 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. Wereldhave's earnings haven't grown over the past 5 years. 

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. Wereldhave's E/P of 10% (using this year's estimated Earnings averaged with the past 2 years operating 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. Wereldhave has a Graham number of (15 x €2,8 EPS x 1 x €44 Book Value) = €42 

Dividend: €2,52/€25,3 = 10% 

Note: The losses of this year, "impairments", are not taken into account in the EPS.

PS: It is interesting that Wereldhave's stock price was hit by the dividend tax discussion, but after that was resolved it didn't get a bounce. There seems to be more momentum in the stock price than I would have expected. Also no-one knows how far sales in brick retailing can fall.

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