Friday, May 24, 2019

Lucas Bols intrinsic value using Graham Defensive analysis

SECTOR: [PASS]  Lucas Bols is 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. Lucas Bols' sales of €92 million, based on 2018 sales, fails this test.

CURRENT RATIO:  [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Lucas Bols' current ratio €55m/€24m of 2.3 passes 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 Lucas Bols is €165 million, while the net
current assets are €31 millionLucas Bols 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. Lucas Bols' EPS growth over that period is a number we don't have because the IPO was in 2015.

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. Lucas Bols' E/P of 8% (using last year's 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. Lucas Bols has a Graham number of (15 x €1,4 EPS x 1,5 x €15,4 Book Value) = €22 and passes this test.

DIVIDEND €0,60/€14.95 = 4%

Conclusion: Lucas Bols seems fairly priced just under €15,- There is a margin of safety at the moment.

2 points: 1. Book value consists of a lot of intangibles (brand). 2. Decline in jenever sales in NL over longterm.

See: for more in depth, qualitative analysis of "good" companies.