Saturday, February 18, 2023

Alfen stock and Graham Defensive value


I was very wrong about Alfen's stock price which I considered too high a few years ago when it was EUR 13,24: 

Sales 2019 EUR 140m ? 

EPS = EUR 0,2
Book = EUR 8,3m equity / 20m shares = EUR 0,41 per share

Question: Why did I think there were 11,3m shares outstanding last year??

Price ...... wait for it

= EUR 13,24 

Earnings have to increase 500% for this to make sense...  https://sinaas.blogspot.com/2019/09/alfen-notes-september-2019-not-for.html

Alfen Graham Defensive Analysis

SECTOR: [PASS] Alfen 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. Alfen's sales of €440 million, based on 2022 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. Alfen's current ratio €262m/€151m of 1.7 just 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 meet this criterion display one of the attributes of a financially secure organization. The long-term debt for Alfen's is €13m (and decreasing), while the net current assets are €111m million. Aalberts 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. Alfen's EPS growth over the past years of > 1 000% passes the EPS growth test.
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. Alfen's E/P of 3% (using last years earnings) fails 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. Alfen's has a Graham number of √(15 x €2,5 EPS x 1,5 x €7 Book Value) = €20

Dividend: There is no dividend payment because all proceeds are reinvested in the company.

Conclusion: February 2023 at 77 Euros: The company operates businesses for which demand can easily double, possibly doubling profits as well within a few years. The stock price seems reasonable at EUR 77, not for the Graham Defensive Investor. 



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