Wednesday, March 30, 2022

Eurocommercial Properties Benjamin Graham analysis


I have adjusted the Graham Defensive Formula to Square Root of ( 15x EPS x 1,0x book ) instead of 1,5x book for real estate companies.

SECTOR: [PASS]  Eurocommercial Properties  is a real estate company. 


SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Eurocommercial Properties' sales of €230 million, based on 2021 sales, just fails 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. Eurocommercial Properties' current ratio €170m/€323m of 0,5 is too low.

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 Eurocommercial Properties is €1 683 million, while the net current assets are - €153 million. Eurocommercial Properties 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. Eurocommercial Properties' earnings haven't increased and were negative in 2013. 

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. Eurocommercial Properties' E/P of  8,4% (using Direct Investment Result per share) passes this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Eurocommercial Properties has a Graham number of (15 x €2,1 EPS x 1 x €40 Book Value) = €36 

Dividend: €1,5/€25 = 6%

Conclusion: The corona panic was a very good time to buy. The price today seems reasonable. Note: There are much fewer shoppers in the stores than 2019...
 

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