Friday, October 01, 2021

AMG Advanced Metallurgical Group N.V. (AMG.AS) a difficult company to valuate.

Results this year are better than over the past years which pushes the Graham Value down. The company has been selling stock whilst paying out dividends, which strikes me as illogical. 

Graham Defensive Analysis

SECTOR: [PASS] AMG 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. AMG's sales of €937 million, based on 2020 sales, pass this test.

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. AMG's current ratio €539m/€343m of 1.6 almost passes 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 meet this criterion display one of the attributes of a financially secure organization. The long-term debt for AMG is €955 million, while the net current assets are €196 million. AMG 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. Companies with this type of growth tend to be financially secure and have proven themselves over time. AMG's EPS were negative in 2013 and in 2020. 

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. AMG's E/P of 2% (using an estimated EPS of 0,5 Euros per diluted share) fails this test.

GRAHAM NUMBER VALUE:  [FAIL]  The Price/Book ratio must also be reasonable. T   hat is the Graham number value must be greater than the market price. AMG has a Graham number of √(15 x €0,25 EPS x 1,5 x €8 Book Value) = €7

Dividend is being paid with sales of stock = effectively 0 %

Conclusion: Too difficult pile.

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