Tuesday, October 19, 2021

Acomo plus Tradin Organic Benjamin Graham defensive analysis

Acomo bought Tradin Organic using debt. Sales and profits per share have increased and profits are being used to pay down debt instead of paying out dividends.

 [PASS]  Acomo is neither a technology nor 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. Acomo's sales of more than EUR 1 000  million, based on 2021 H1 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. Acomo's current ratio €473m/€281m of 1.7 fails the test.

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 Acomo is €114 million (of which €11m leases), while the net current assets are €192 million. Acomo 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. Acomo's EPS growth was more than 100% over the past 10 years, Acomo passes this test. 

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. Acomo's E/P of 7% (using the last 3 years Earnings) 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. Acomo has a Graham number of (15 x €1,6 EPS x 1,5 x €11,1 Book Value) = €20 

Dividend: was €1,1/€20 = 5,5%, currently EUR 0,- as they pay down EUR 114m in debt.

Conclusion 2020: The merger seems to be going well. Not especially cheap or expensive at the moment.

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