dinsdag 6 maart 2018

Nagacorp a textbook example of Mr. Market's mood swings: intrinsic value and price

 A little over a year ago I did a Benjamin Graham Defensive Analysis of Nagacorp a casino in Cambodia. The price was 4,27 HKD (Hong Kong Dollars), this was the value investing graph:


This is the graph today:

This is value investing theory:

Nagacorp Graham Analysis today March 2018. 

An assumption of Earnings per Share growth ( through Nagacorp 2 expansion and extra gambling "junkets" from China) to 0,87 Hong Kong Dollars EPS is made.

SECTOR: [PASS] Nagacorp is in the gaming sector. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

[PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Nagacorp' sales of HKD 7 253 million, (€926m) 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. Nagacorp' current ratio HKD1 222m/HKD618m of 2,0 passes this 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). The long-term debt for Nagacorp is HKD 0 million (or have convertibles been issued to the CEO for the Vladivostok expansion??), while the net current assets are  HKD 595 million. Nagacorp 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. Nagacorp' earnings per share have increased 240% since 2007.

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. Nagacorp's  E/P of 8%  (using the average of the last 2 years Earnings and a 2018 estimate) passes 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. Nagacorp has a Graham number of √ (15 x HKD 0,7 EPS x 1,5 x HKD 3,4 Book Value) = HKD 7,3 

Dividend ? : HKD 0,22/ HKD 7,91 = 3%

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