Thursday, June 18, 2020

Novisource Benjamin Graham Defensive Analysis

Notes end of 2018: Novisource came to the stock market via a reverse take over in 2014 (lege beurshuls). The CEO and CFO of Novisource recently quit in 2018, the tax authorities are doing an investigation...

Conclusion 2018: Eventhough the stock price has dropped from over 3 Euros to 98 cents, the stock still seems expensive. Not a stock for the Graham Defensive Investor.

Today, June 18, 2020 the stock price is 10% lower at 90 cents per share. 

SECTOR: [PASS] Novisource 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. Novisource's sales of €13,8 million, based on 2019 sales, fails this test, and sales are decreasing.

 [FAIL] [PASS]  Novisource Current assets  €4,8m divided by short-term debt €2,6m = 1.8 which is just under Graham's limit of 2. 

[PASS] Long-term debt €0,7m is lower than Net Current Assets €3m.

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. 
Novisource has lost money in 2016.

Earnings Yield: [PASS]  Graham likes to see 7% or higher. If you use adjusted earnings without the 2019 impairment, the Earnings Yield is 7%.

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. Novisource has a Graham number of (15 x €0,06 EPS x €0,4 Book Value) = €0,75

Dividend: € 0,05 (not being paid in 2020 due to Coronavirus).

Conclusion 2020: the price seems fair here, not a huge "margin of safety", buy at under 70 cents.

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