Wednesday, January 01, 2020

CTAC Business & Cloud Integrator Intrinsic Value per Share

SECTOR: [PASS]  Ctac  is a IT / ERP service company started in 1992. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Ctac's sales of €83 million, based on 2018 sales, fails this test.

Being a relatively small company, makes it vulnerable for losses, such as a court case against a single customer that they lost in 2019, cutting profit in half. 

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. Ctac's current ratio €21m/€25m of 0.9 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 Ctac is €4 million (of which 3,7 is lease obligations), while the net current assets are - €4 million. Ctac fails this test, on the other hand, debt is decreasing.

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. Ctac's earnings have increased 100% over the past five 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. Ctac's E/P of 6% (using an average of the past 3 years) passes 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. Ctac has a Graham number of (15 x €0,13 EPS x 1,5 x €1,41 Book Value) = €2 

Dividend: €0.08/€2,1 = 4% 

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