Wednesday, August 18, 2021

DPA Gilde offer rough math with Benjamin Graham defensive number

The offer of EUR 1,70 is close to EUR 1,80 which is the Graham Defensive value I guesstimate.

SECTOR: [PASS]  DPA  is a HR service company.  The labor laws changed in 2017, which was a negative, but the current economic situation after the Coronadip is a positive. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. DPA's sales of €135 million, based on 20202 sales, fails this test. Sale were increasing.

CURRENT RATIO: [PASS]  The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. DPA's current ratio €21m/€8,7m of 2,4 is o.k..

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 DPA is €7,3 million, while the net current assets are -€12 million. DPA passes this test.

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. DPA's earnings were negative between 2006 and 2011 and had increased by over 100% since 2013, not including 2020.

Earnings Yield: [PASS] [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. DPA's E/P of 11% (using 2019 Earnings) passes this test. Last years earnings yield of 2% fails the 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 €0,1 EPS x 1,5 x €1,4 Book Value) = €1,8

Dividend: No dividend at the moment.

Conclusion: It seems like Gilde got a good price. 

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