donderdag 1 maart 2018

ASM International ASMI intrinsic value based on Benjamin Graham number

ASM International is doing well. Business in ALD : Atomic Layer Disposition, about half of sales, is going well and expected to increase. 2017 profit of €7,6 per share was connected to the sale of part of ASMPT. Dividend has been increased to €0,80 from €0,70 and there will be a special dividend of €4,- per share.

SECTOR:  [FAIL]  ASM is in the Technology 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. At that time they were not the driving force of the market as they are today. Although this methodology would avoid ASM, we will provide the rest of the analysis, as we feel times have changed.

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. ASM's sales of €737 million, based on 2017 sales, passes 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. ASM's current ratio €1 158m/€151m of 7.7 passethis test with flying colors.

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 ASM is €14 million, while the net current assets are €1 007 million. ASM passes this test easily.

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. ASM's earnings have increased 200% over the past ten years.

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. ASM's E/P of 5% (using this years adjusted Earnings of €3,2) 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. ASM has a Graham number of (15 x €3,7 EPS x 1,5 x €38,9 Book Value) = €57 

Dividend: €0.8/€62 = 1,3% and has increased over the years. ASM International is also buying back shares using its cash.

Conclusion: ASM has a very strong balance sheet and seems like a good pick for the Defensive Investor at a price of around €55, currently the price of €62, seems reasonable. 

Note: I haven't done much homework and don't understand the business or why profits were so high in 2013. bought at €34,5 and sold at €45,97 February 1 st 2017, a 30% gain in less than a year.

In September 2017, we bought again at 51 and will sell around €65 if the price goes up quickly.

See: for more in depth, qualitative analysis of "good" companies.

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