Kendrion share Price and Graham Value after impairment loss in 2022

Kendrion annual report excerpt: 

"Profit for (2022) ended at a loss of EUR 46.3 million  (FY 2021: EUR 14.4 million profit) and was significantly affected by a EUR 58.5 million impairment of goodwill and other acquisition related intangibles and tax assets in the newly established business unit Automotive Core. The impairment is the result of the fundamental shift in the automotive industry which is expected to phase out the combustion engine in the next 10 to 15 years. This phase-out will impact future revenues of Automotive Core, which focuses on the production and marketing of existing technologies for combustion engine vehicles."

SECTOR: [FAIL]  Kendrion is in the Technology sector, which is one sector that this methodology avoids. Technology and financial stocks are considered too risky to invest in. Several of Graham's criteria, like the Current Ratio and Debt to Current Assets, do not apply to financial companies. As a result, the company will not be able to pass this methodology, although we will include the remainder of the analysis for informational purposes.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Kendrion's sales of €520 million, based on 2022 sales, pass this test.

CURRENT RATIO:  [FAIL] [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Kendrion current ratio €198m/€106m of 1,9 just fails this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] Long-term debt must not exceed net current assets. Companies that meet this criterion display one of the attributes of a financially secure organisation. Kendrion has Net Current Assets of €92 million and an increasing long-term debt of €195 million. 

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. EPS for Kendrion's earnings haven't increased 30% in the last 10 years, therefore the company fails this criterion. 

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. Kendrion's E/P of 9% using this year's expected earnings 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. Kendrion has a Graham number of √(15 x € 1 EPS x 1,5 x €11 Book Value) = €16

Dividend:  €0,72 / €11,1 = 6%

Conclusion November 2023: Like a number of other Dutch stocks, Kendrion seems cheap at the moment.