Friday, January 10, 2020

Envipco notes 2019

Earnings were EUR 0,5 per share in 2018, making a loss in 2019 (due to opening of Romanian factory?)

Book value EUR 26m equity/ 4,1m shares = EUR 6 book value per share.

Share price should be between EUR 5 and 10? And is....

EUR 10,5 (down from EUR 13,40).

Not for the Graham Defensive Investor due to small size (Revenue 2018 EUR 35,4m)  

Envipco notes 2018

Small Belgian/Dutch recycling company making reverse vending machines. Placing 20% more shares in the market in 2018. Share count was 3,8 million.
Mixed results in the past.

Graham Defensive Analysis:

SECTOR: [PASS] Envipco is a recycling company. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Envipco's sales of €34 million, based on 2017 sales, 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. Envipco's current ratio €17/€10m of 1,7 is a bit too low.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] 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 Envipco is €4,4 million, while the net current assets are  €7 million. Envipco passes 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. Companies with this type of growth tend to be financially secure and have proven themselves over time. Envipco's earnings were negative in 2017 and thus fails this test. 

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. Envipco's E/P of 2% (using this year's estimated 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. DPA has a Graham number of (15 x €0,35 EPS x 1,5 x €5,7 Book Value) = €6,7 

Dividend: €0.00   

Conclusion: It seems like a good idea for the company to issue new shares at this market price to finance European expansion. Not a share for the Graham Defensive Investor.

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