donderdag 7 december 2017

Krka Group: Benjamin Graham Defensive analysis of intrinsic value

 Krka, d. d.  Website: 

Shares on Polish stock exchange:  SI0031102120

SECTOR: [PASS] Krka Group is a pharmaceutical company and 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. Krka Group's sales of €1 200 million, based on 2017 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. Krka Group's current ratio: €848m current assets / €317m current liabilities of 2.7 passes 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 do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Krka Group is €116 million, while the net current assets are €131 million. Krka Group passes 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. Krka Group has consistently made money, but earnings have only increased 15% since 2007. Krka Group fails this test.

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. Krka Group's E/P (using the current 2017 profits)  are €4,5 / €9 = 8,5% and 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. Krka Group has a Graham number of (15 x €4,5 EPS x 1,5 x €44 Book Value) = €66,7 Price (wat de gek ervoor geeft) is € 53 December 7th 2017.  

Dividend: 2,75/53 Euros is 5,1% note that the dividend has been increasing during the past years.

Conclusion: Krka Group is a defensive stock. The increase in earnings over the past 10 years is slightly lower than Graham stipulated. The stock probably won't make you rich over-night but should help increase your wealth over time.

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