Friday, November 15, 2019

Akzo Nobel shares of stock intrinsic value based on Benjamin Graham Defensive analysis

I am not sure how low the AKZA share price went last December 2018. According to it went down to EUR 61,17 and according to the price didn't go under EUR 74?

In  July 2018 I wrote: EUR 24 + EUR 40 = 64 EURO guesstimate of value per share. Compared to a price of EUR 74, Akzo Nobel still seems expensive. There is no "Margin of Safety" for the Graham Defensive Investor.

So maybe since then you could have bought for EUR 61 and sold for a profit, especially if you include dividends.

Graham Defensive Analysis

SECTOR: [PASS] AKZO is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. AKZO's sales of €9 300 million, based on 2018 sales, pass 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. AKZO's current ratio €5,900m/€3,597m of 1.6 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 AKZO is €3,432 million, while the net current assets are €2,306 million. AKZO fails this test.

LONG-TERM EPS GROWTH: [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. EPS for AKZO haven't really increased.

EARNINGS YIELD: [FAIL]  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. AKZO's earnings yield of 4% (using the 3 year average Earnings) fails 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. AKZO has a Graham number of (22,5 x €3,2 EPS x €35 Book Value) = €50 and fails this test.

DIVIDEND 2? Euro/EUR 88 = 2,3%

Conclusion 2019: Investors have done quite well if you include special dividends. The price now seems high. 

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