SECTOR: [PASS] B&S is in the wholesale/retail sector. Technology and financial stocks were considered too risky to invest in when this methodology was published. At that time they were not the driving force of the market as they are today.
SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. B&S's sales of €1 870 million, based on 2021 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. B&S's current ratio €633m/€263m of 2.4 passes this 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 B&S is €292 million, while the net current assets are €370 million. B&S passes this test easily.
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. B&S's earnings have increased by 100% ? over the past ten years.
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. B&S's E/P of 7,7% (using this years adjusted Earnings of €0,9) passes this test.
Benjamin Graham value: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. B&S has a Graham number of √(15 x €0,5 EPS x 1,5 x €3,6 Book Value) = €6,3
Dividend: €0,18/€7,63 = 2,4% and is roughly 40% of profit.
1 comment:
Meanwhile the stock has dropped to EUR 4.80 so below the Graham value. Market Cap is some EUR 400 mln. Add the long term and short term debt less cash this makes the Company Value some 400+180+59-12= say EUR 627 mln (all figures from the 2021 Annual Report).
The Operating Result is EUR 75 mln, Maintenance CAPEX ca EUR 15 mln according to the FY2021 Investors call. So before interest and tax this company's from is some EUR 60 mln.
This makes it worthwhile, assuming its earnings are stable, you pay a fictive EUR 627 mln and get back EUR 60 mln per year. And on top of that the company has growth ambitions (which seem optimistic at 7.5%).
The problem lies in the robustness of the earnings. How protected at B&S earnings from other entrants? The military segment might be exclusive but it's not robust. Airport shops are exclusive (B&S has the space) but the rest seems pretty open to new entrants. Added to that, liquor, fragrance, beauty and food seem pretty discretionary.
Conclusion, the Graham price seems too high but current price seems fair but not cheap.
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