Thursday, August 19, 2021

AkzoNobel Graham Defensive analysis

SECTOR: [PASS] AKZO is neither a technology nor a 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 €8 530 million, based on 2020 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 €5,064m/€3,093m 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 €4,134 million, while the net current assets are €1,971 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 3% (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 (15 x €3,2 EPS x 1,5 x €28 Book Value) = €45 and fails this test.

DIVIDEND 1.95 EUR/EUR 102 = 2%

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