Wednesday, October 30, 2019

VolkerWessels intrinsic value based on Benjamin Graham Defensive strategy Reggenborgh offer seems too low

Less than a year ago, VolkerWessels shares were on sale for EUR 13 per share:

I wrote in December 2018: "... 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. .... 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. "

Now the Wessels family wants to buy the minority shareholders out for EUR 21,75 a share.  That's less than the market paid at the IPO a little while ago. A simple way to make money.

This is the third time they have done something similar:

What I don't know or understand is why the family didn't buy a substantial amount of shares for EUR 13 last December? Or did they? I am not sure.

Dik Wessels liked "eenvoud" = simplicity.

Benjamin Graham Defensive Analysis
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 €5 924 million in 2018 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 518m/€2 440m of 1,0 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 €437 million (including EUR 175 leases under IFRS 16), while the net current assets are  €78 million. VolkerWessels 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. 

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 7% (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 €14,5 Book Value) = €24 

CONCLUSION 2019: The offer of EUR 21,75 is too low and should not be accepted.
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.

1 comment:

Kumar V said...

Good Explanation. At now, I am interested on havells india.