woensdag 27 december 2017

Assured Guaranty Graham Defensive Analysis

Assured Guaranty, bond insurance company:
Graham Number:  Wortel ( 15 x Winst per Aandeel x 1,5 x Boekwaarde per Aandeel)
Value = Wortel ( 15 x $6,95 Winst per aandeel x 1,5 x $58,32 ) = $94 Value
Price = only $33,6 = 64% margin of safety (korting).
The company insures (assures) loans from governments. Puerto Rico has gone bankrupt, so this costs the company money, but less than Mr. Market seems to think.
Total exposure is $4,8billion but $2 billion of this is after 2030.  The company's income from investments is $400 million a year, higher than the total loss when spread out. 
The company is using cash on hand to buy back its own shares at a discount, which increases the value of shares which are sold back. 
The CEO, http://assuredguaranty.com/about-us/our-people/board-of-directors/dominic-frederico is experienced and the company survived the financial crisis of 2008-2009 quite well.
Fits the Graham Defensive Analysis, except for the fact that it is a financial company. 
Proposal: Buy 25 shares Assured Guaranty at $33,6 which would be 1,7% of our portfolio. 
Math: Value averaging January 2018:  2 784 Euros Mr. Market price in stocks x 14 people = 38 976 Euros stocks minus 38 260 market price of our stocks now = 716 Euros budget to buy. 
716 Euros / 41 430 stocks + cash in portfolio = 1,7% 
716 Euros = 815 dollars / $34 price per share = 25 shares.
Value Investors Kahn Brothers are also share holders:  https://en.wikipedia.org/wiki/Irving_Kahn
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Detailed Analysis by Validea


SECTOR: FAIL

AGO is in the Financial sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published. Although times have changed since then with respect to the risk of financial stocks, 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 $1 billion. AGO's sales of $1,982.0 million, based on trailing 12 month 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. AGO is a financial stock so the current ratio analysis cannot be applied and this criterion cannot be evaluated.


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 organization. AGO is a financial stock so this variable is not applicable and this criterion cannot be evaluated.


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 10 years. We have data for 8 years, and have adjusted this requirement to be a 24% gain over the 8 year period. Companies with this type of growth tend to be financially secure and have proven themselves over time. AGO's EPS growth over that period of 399.0% passes the EPS growth test.


P/E RATIO: PASS

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. AGO's P/E of 5.10 (using the 3 year PE) passes this test.


PRICE/BOOK RATIO: PASS

The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22. AGO's Price/Book ratio is 0.58, while the P/E is 5.10AGO passes the Price/Book test.

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