Monday, April 13, 2099

Valuation of all stocks listed in Holland AEX All Share AAX: Benjamin Graham Defensive Investor method

Warren Buffett: "Well, start with the A’s." Click on the companies below for Graham Evaluation:

Aalberts Industries AEX:AALB, NL0000852564
ABN AMRO AEX:ABN48 NL0011540547
Accell Group AEX:ACCEL NL0009767532
Ahold Koninklijke AEX:AH, NL0010672325
Accsys Technologies AEX:AXS, GB00BQQFX454: Too small, making a loss, but growing sales.
Aegon AEX:AGN, NL0000303709
AFC AJAX AEX:AJAX NL0000018034
Air France-KLM PSE:AF, FR0000031122
Akzo Nobel AEX:AKZA NL0000009132
Altice AEX:ATC, NL0011333752
AMG Advanced Metallurgical Group NV AMG:AEX NL0000888691
Amsterdam Commodities AEX:ACOMO NL0000313286
AND International Publishers
Apollo Alternative Assets AEX:AAA1, GB00B15Y0C52
Aperam AEX:APAM LU0569974404
Arcadis AEX:ARCAD, NL0006237562
ArcelorMittal AEX:MT, LU0323134006
ASM International AEX:ASM NL0000334118 BUY under €35
ASML Holding NV
ASR Nederland a buy under 30 Euros?
Batenburg Techniek
BAM Koninklijke Groep 
Basic Fit ?! don't buy above 7,50
BE Semiconductor Industries AEX:BESI, NL0000339760
Beter Bed Holding AEX:BBED, NL0000339703

Berkshire Hathway run by Warren Buffett

Bever Holding: Small real estate fund, neg. cash flow, selling at 3,8 under 5,5 Euro book value. Plans to make money in near future. Buy?
BinckBank buy under 3 Euros
Boskalis Westminster Koninklijke AEX:BOKA, NL0000852580
Boussard & Gavaudan Holding Ltd. An expensive hedge fund.
Brill, Koninklijke kopen onder 22 Euro
Brunel International AEX: BRNL, NL0010776944
Coca-Cola European Partners
Corbion AEX:CRBN, NL0010583399
Core Laboratories AEX:CLB, NL0000200384
Ctac buy under €3,20
Curetis loss making biotech company = too difficult pile. Price fell from 7,14 to 5 June 2016-June 2017
Docdata: Now a  holding for the https://www.ease2.com/ Internet of Cars app, under construction.
Delta Lloyd now part of NN Group.
DPA Groep N.V. buy at €1,4
DSM Koninklijke don't buy over 40 Euros
Esperite: Stem Cell Bank losing money hand over fist. Price fell from 3 to 0,70 June 2016-17
Eurocastle NPL Non Performing Loans in Italy 10% dividend FFO Funds From Operations pretty good, selling at 8,55 which is 7% under Net Asset Value
Eurocommercial Properties: Buy under 40?
Euronext buy at €30
Fagron impairments
ForFarmers a Graham Defensive Pick up to €6,50
Flow Traders outside my circle of competence, seems like a buy under €30
Fugro's Graham Value has decreased, buy at €10?
Gemalto buy under €35
Galapagos is a clinical-stage biotechnology company, not profitable (yet?).
GrandVision : Don't buy over €20
Groothandelsgebouwen N.V. buy under €50
HAL Trust
Headfirst Source part of Value8 holding. Figures? Earnings 2017 before Amortization 0,30?
Heijmans losing money check August 17 2017
Heineken, buy under 60?
Holland Colours buy under €70
Hunter Douglas, good balance sheet, buy if under €70
Hydratec buy at 55 sell at 65
ICT Group NV buy under 9 Euros
IEX Group Sales 2m, losses 600k, not for the defensive investor
IMCD buy under 35 Euros
ING Bank buy under 15 Euros
Intertrust too little history: Earnings per share 2016 Euro 1,3 x 15 = 19,5 Euros: Price = 19,86 Euros
Inverko used to be Newconomy, is for sale, garbage (disposal) Price = 0,60 Euros
Kardan made a loss 5 out of the last 5 years including 2016 and first Q 2017. Almost bankrupt?
KAS BANK cheap now under 10 Euros ?
Kendrion buy at 25 Euros
Kiadis Pharma bleeder, not for Defensive Investor, no sales
Klepierre French Retail Real Estate 5% dividend
KPN not for the Graham Defensive Investor
Porceleyne Fles Koninklijke Check under 5 Euros.
K. VolkerWessels check after August 31st, 2017
K. VOPAK buy under 35
K. Wessanen 
K. VolkerWessels
Lavide taking over childcare company sept 2017 
Lucas Bols buy under €15
Nedsense lege beurshuls prijs 5,6x intrinsieke waarde
New Sources Energy fraud
Neways electronic manufacturing services (EMS)
NN Group NV buy now under €40?
Novisource turnaround
NSI Nieuwe Steen Investments HNK = Het Nieuwe Kantoor
Value8 AEX:VALUE NL0010661864
Nedap NV Nederlandsche Apparatenfabriek
OCI NV buy under 16 Euros
Oranjewoud not a Defensive stock...
Pharming back of the envelope math
Philips Electronics buy around 20?
Philips Lighting
PostNL
Probiodrug loss making biotech, not a stock for the Defensive Investor
Randstad
Refresco Group  buy around 12 Euros?
RELX Group (formerly Reed Elsevier)
RoodMicrotec shareholder financed
Royal Dutch Shell
SBM Offshore 
Sif Holding
Sligro 
SnowWorld
Stern Groep buy under 25 Euros?
Takeaway.com making a loss, not for the Defensive Investor. Prijs 10x verkoop.
Tetragon investment fund including CLO (Collateralized Loan Obligations) NAV $20, price $12,44
Thunderbird Resorts: Negative book value and losing money.
TIE Kinetix Shares Outstanding: 2013:933 2014:1127 2015:1227 2016:1830
TKH Group
TomTom
Unibail Rodamco a buy?
Unilever after Kraft Heinz bid
Value8 not much information
Van Lanschot
Vastned Retail check after share buybacks May 15th
VNC = too difficult pile: Geert Schaaij + Selwyn Duijvestijn 
Volta Finance fund including CLO (Collateralized Loan Obligations)
Wereldhave, buy?
Wolters Kluwer
Yatra Capital Indian Real Estate, losing money, stopping? Book 7,5 E, Price 5,75 E.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, September 20, 2017

NSI valuation after 8 to 1 reverse split

February 2017

The company is shifting strategy to office spaces.

EPS 0,33 Euro x 15 = 4,95 Euros x 8 = 39,60 Euros

Book Value is 4,25 Euro x 8 = 34 Euros

Graham Number is Square Root ( 4,95 x 1,5 x 4,25) = 5,6 Euro Graham Number x 8 = 44,8 Euros

Stock Price = 3,78 Euros x 8 = 30,24 Euros

Seems cheap. Dividend is 0,27/3,8 = 7% Pretty Good

0,27 Euros dividend x 8 = 2,16 Euros

-------------------------------------------------------
September 2017

EPS 2017 expectation = 2,55 Euros x 15 multiple = 38,25 Euros

Earnings Yield = 2,55 Euros Earnings per share / 32,7 Euros price = 8%

Book value is 35 Euros.

Graham Number = Square root (35 x 1,5 x 38,25) = 44,81 Euros

Expected return of 5-10% per year.

http://nsi.nl/

See www.beterinbeleggen.nl for great companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, September 19, 2017

Deckungsbeitrag = BCP Fund



Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Novisource back of the envelope Benjamin Graham intrinsic value

The company's results are improving and the share price is declining...

The number of shares is 11,7 million.

Earnings per share 0,08 Euros? x "multiple" of 15 = 1,2 Euros

Book value 3,8 million euros + 400k from selling Diesis Consultancy = 4,2 million Euros / 11,7 million shares = 0,36 Euros book value per share.

Price is 1,8 Euros. Too high for the Benjamin Graham Defensive Investor.

See www.beterinbeleggen.nl for in-depth analysis of great companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Monday, September 18, 2017

Neways Electronics is Add (ing intrinsic ) Value

Price is what you pay, Value is what you get. The best thing is to have the value increase, when you paid a fair price.

SECTOR: [PASS]  Neways is in electronic manufacturing services (EMS) 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. Neways' sales of €393 million, based on 2016 sales, passes 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. Neways' current ratio €136m/€97m of 1.4 fails 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 Neways is €11,4 million, while the net
current assets are €39 millionNeways 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. Neways made a loss in 2012.

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. Neways' E/P of 6% (using last years earnings) 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. Neways has a Graham number of (15 x €0,71 EPS x 1,5 x €7 Book Value) = €10,6 and fails this test.

DIVIDEND €0,34/€12,73 = 3%

Conclusion: Neways seems priced just above intrinsic value. No margin of safety at the moment. The price was better a year ago when the Add Value Fund bought stock. 

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

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, September 12, 2017

Nedsense beurshuls intrinsic value?

Losing money, no activity.

Book value: 800 000 Euros

Market cap: 30 000 000 shares x 0,15 Euros = 4 500 000 Euros.

Seems expensive here. It is selling at 5,6 times what it is "worth".

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Thursday, September 07, 2017

Lucas Bols and the Lindy Effect; Price is currently equal to Value?


Lucas Bols is an old brand, so chances are it will still exist 7 years from now: https://en.wikipedia.org/wiki/Lindy_effect


SECTOR: [PASS] Lucas Bols is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Lucas Bols' sales of €81 million, based on 2016 sales, fails 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. Lucas Bols' current ratio €21m/€4m of 5 passes this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] 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 Lucas Bols is €163 million ? (it is not exactly clear to me what the debit is, it seems to have increased as part of a deal to sell Passoa), while the net
current assets are €17 millionLucas Bols fails this test.

LONG-TERM EPS GROWTH: [PASS] [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. Lucas Bols' EPS growth over that period is a number we don't have because the IPO was in 2015.

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. Lucas Bols' E/P of 6,3% (using last years earnings) just fails 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. Lucas Bols has a Graham number of (15 x €1,07 EPS x 1,5 x €13,7 Book Value) = €18,9 and passes this test.

DIVIDEND €0,57/€18,9 = 3%

Conclusion: Lucas Bols seems fairly priced just above €18,9. Little margin of safety at the moment.

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

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Thursday, August 31, 2017

VolkerWessels simple intrinsic value calculation


Decades ago Benjamin Graham wrote: The Intelligent Investor. Warren Buffett read the book and the rest is history.

It never fails to surprise when the market "follows" Graham's simple rule for the Defensive Investor: Don't pay more than 15x Earnings and/or 1,5x Book Value.

The Graham Number value is the geometric average of the two:

Square Root ( 15 x 1,9 Euros Earnings per Share x 1,5 x 13,5 Euros Book Value per Share ) =

24,1 Euros Graham Value

"Mr. Market" Price per share today: 25,6 Euros.

For in depth analysis of other companies, see: www.beterinbeleggen.nl

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, August 30, 2017

Koninklijke Wessanen NV intrinsic value Graham Defensive valuation

Not a buy when over 10 Euros per share. 60 cents Earnings per Share x 15 Multiple is 9 Euros.


Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, August 29, 2017

Koninklijke Vopak Benjamin Graham Intrinsic Value

SECTOR: [PASS]  Vopak is 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. Vopak's sales of €1 650 million, based on 2016 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. Vopak's current ratio €608m/€534m of 1.1 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] 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 Vopak is €2 429 million, while the net current assets are €74 millionVopak fails 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. Vopak's EPS growth over that period of 141% passes the EPS growth 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. Vopak's E/P of 8% (using the average of last 3 years earnings) 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. Vopak has a Graham number of (15 x €3,1 EPS x €18,7 Book Value) = €36 and passes this test.

DIVIDEND €1,05/€36 = 3%

See www.beterinbeleggen.nl for better analysis of companies worldwide.

Monday, August 28, 2017

Koninklijke KPN NV Price is what you pay, value is what you get.

SECTOR: [PASS]  KPN is 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. KPN's sales of €6 806 million, based on 2016 sales, pass this test, but sales are decreasing year to year.

CURRENT RATIO
[PASS]  Current assets  €5 195 divided by short term debt €2 628 = 2.0 which is Graham's limit. 

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS
[FAIL] Long term debt €8 156 is higher than Net Current Assets €2 567.

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 KPN have decreased since 2003 and therefore the company fails this criterion. It has also lost money during the past 5 years.


Earnings Yield: [FAIL] Graham likes to see 7% or higher. 6% 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. KPN has a Graham number of (15 x €0,18 EPS x €0,84 Book Value) = €1,8

Dividend€ 0,11/€3 = 4%

Conclusion 2016: KPN is not a growing, money making machine. The stock price and debt are too high for the Defensive Investor.

Conclusion 2017: Copy / paste 2016

See www.beterinbeleggen.nl for better analysis of companies.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Friday, August 25, 2017

Einfach Simple

Man muß die Dinge auch so tief sehen, daß sie einfach sind. 
Wenn man nur an der Oberfläche der Dinge bleibt, sind sie nicht einfach; 
aber wenn man in die Tiefe sieht, dann sieht man das Wirkliche und das ist immer einfach.
(Dr. Konrad Adenauer, deutscher Politiker (CDU), 1949-63 erster Bundeskanzler (1876-1967)) 

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Wednesday, August 23, 2017

Warren Buffett's simple Berkshire Hathaway intrinsic value math

Summary: 1,25 price to book is a very reasonable price for Berkshire Hathaway stock. If you buy at that price point, you can expect a future return of roughly 12%. Buy A shares if the price dips under 1,4 PB = $182,816 x 1,4 = $255,942

=======

Below is a slightly simplified version of the explanation given by Warren Buffett in his Letter to Shareholders 2012; http://www.berkshirehathaway.com/letters/2012ltr.pdf see page 20.

"We’ll start by assuming that you are the owner of a business with $1.00 million of book value. The business earns 12% on tangible book value – $120,000 – and can reasonably expect to earn the same 12% on reinvested earnings. Furthermore, there are outsiders who always wish to buy into your business at 125% of net worth (in other words at a stock Price of 1.25x Book or 1.25 "PB"). Therefore, the quoted (or market) value of what you own is now $1.25 million. You leave all earnings in the company and sell 3.2% of your shares annually. Since the shares would be sold at 125% of book value, this approach would produce $40,000 of cash initially, a sum that would grow annually. Call this the “sell-off” approach. Under this “sell-off” scenario, the net worth of your company increases to $3,105,848 after ten years ($1 million compounded at 12%). Because you sell shares each year, your percentage ownership would have declined, and, after ten years, you would own 72.24% of the business. Even so, your share of the net worth of the company at that time would be $1 121 770. And, remember, every dollar of net worth (book value) attributable to you can be sold for $1.25. Therefore, the market value of your remaining shares would be $1 402 213. Voila! – you have both more cash to spend annually and more capital value. This calculation, of course, assumes that our hypothetical company can earn an average of 12% annually on net worth and that its shareholders can sell their shares for an average of 125% of book value. To that point, the S&P 500 earns considerably more than 12% on net worth and sells at a price far above 125% of that net worth. Both assumptions also seem reasonable for Berkshire, though certainly not assured. (Keep remembering, open-market purchases of the stock take place at 125% of book value.)

Moreover, on the plus side, there also is a possibility that the assumptions will be exceeded.  The sell-off method, unlike dividends, lets each shareholder make her own choice between cash receipts and capital build-up. One shareholder can elect to cash out, say, 60% of annual earnings while other shareholders elect 20% or nothing at all.  

Let me end this math exercise – and I can hear you cheering as I put away the dentist drill – by using my own case to illustrate how a shareholder’s regular disposals of shares can be accompanied by an increased investment in his or her business. For the last seven years, I have annually given away about 4,25% of my Berkshire shares. Through this process, my original position of 712,497,000 B-equivalent shares (split-adjusted) has decreased to 528,525,623 shares. Clearly, my ownership percentage of the company has significantly decreased. Yet my investment in the business has actually increased: The book value of my current interest in Berkshire considerably exceeds the book value attributable to my holdings of seven years ago. (The actual figures are $28.2 billion for 2005 and $40.2 billion for 2012.) In other words, I now have far more money working for me at Berkshire even though my ownership of the company has materially decreased. It’s also true that my share of both Berkshire’s intrinsic business value and the company’s normal earning power is far greater than it was in 2005. Over time, I expect this accretion of value to continue – albeit in a decidedly irregular fashion – even as I now annually give away more than 4,25% of my shares (the increase has occurred because I’ve recently doubled my lifetime pledges to certain foundations).

At Berkshire we will stick with our no dividend, sell off policy as long as we believe our assumptions about the book-value buildup and the market-price premium seem reasonable. If the prospects for either factor change materially for the worse, we will reexamine our actions."

Below is a chart I have used for my own decisions on Berkshire Hathaway, when I wanted to sell around October 2016. I decided to wait and did some selling around January 2017. (The chart is in Euros and is based on only 7 unevenly distributed data sets across the years, but should get the point across.) The current Price / Book at Berkshire Hathaway is: $180/$122 = 1,48 which is higher than 1,25. (B shares is A shares divided by 1 500. Buy A shares if the price dips under 1,4 PB = $182,816 x 1,4 = $255,942 )






Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, August 22, 2017

Koninklijke Brill Scholarly Publishing Intrinsic Value

Founded in 1683, Brill is a publishing house with a rich history and a strong international focus. The company’s head office is in Leiden, (The Netherlands) with a branch office in Boston, Massachusetts (USA). Brill was listed at the Amsterdam Stock exchange in 1896.



Last year November
Now August 2017

SECTOR: 
[PASS]  Brill is in publishing and passes this test. Technology and financial stocks were considered too risky to invest in when this methodology was published. 
SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Brill's sales of €32 million, based on 2016 sales, fails 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. 
Brill's current ratio €28m/€16m of 1,8 is very close and in combination with no long term debt 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). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for 
Brill is €3,7 million, while the net current assets are €12 million. Brill 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. Brill's earnings have increased 31% from 10 years ago.

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. Brill's E/P of 4% (ulast year's Earnings) 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. Brill has a Graham number of (15 x €1,3 EPS x 1,5 x €15 Book Value) = €21,7

Dividend: €1,32/€35,8 = 4% 

Conclusion: 
Brill has a strong balance sheet and pays a good dividend, but seems expensive for the Defensive Investor at a price of €35,8 in August 2017. 

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

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Tuesday, August 08, 2017

Elon Musk's Paypal (X.com) master plan: A financial services flywheel of growth aka snowball or productivity loop

In his Ashlee Vance biography, Elon Musk talks about what he sees as a huge missed opportunity for Paypal. Here is how he explained it in Appendix 2, below that similar thinking by the Brenninkmeijer family, Sam Walton and Jeff Bezos is presented.

"While Musk has reflected publicly about his time at Paypal and the coup (he was removed as CEO), he went into far greater detail than ever before during one of our interviews... Musk had been able to meditate more on what went right, what went wrong, and what might have been... and ended with an explanation of how the finance industry still hasn't solved the problems X.com wanted to tackle. 

"... At the time it was this weird almost hybrid brand with X.com and PayPal. I think X was the right long-term brand for something that wants to be the central place where all transactions happen.  That's the X. It's like the X is the transaction. PayPal doesn't make sense in that context, when we're talking about something more than a personal payment system. I think X was the more sensible approach but timing-wise it didn't need to happen then. That should have probably waited longer ... In retrospect, I should have delayed the brand transition (from X.com to PayPal).... I've thought about trying to get PayPal back. I've just been too strung out with other things. Almost no one understands how PayPal actually worked or why it took off when other payment systems before and after it didn't. Most of the people at PayPal don't understand this. The reason it worked was because the cost of transactions in PayPal was lower than any other system. And the reason the cost of transactions was lower is because we were able to do an increasing percentage of our transactions as ACH, or automated clearing house, electronic transactions, and most importantly, internal transactions. Internal transactions were essentially fraud-free and cost us nothing. An ACH transaction costs, I don't know, like twenty cents or something and was slow, so that was the bad thing. It's dependent on the bank's batch processing time. And then credit card transaction was fast, but expensive in terms of the credit card processing fees and very prone to fraud. That's the problem Square is having now. 
Square is doing the wrong version of PayPal. The critical thing is to achieve internal transactions. This is vital because they are instant, fraud-free, and fee-free. If you're a seller and have various options, and PayPal has the lowest fees and is most secure, it's obviously the right thing to use.
When you look at any given business, like say a business is making 10 percent profitability. They're making 10 percent profit when they may net out all of their costs. You know, revenue minus expenses in a year, they're 10 percent. 
If using PayPal means you pay 2 percent for your transactions and using some other systems means you pay 4 percent, that means using PayPal gives you a 20 percent increase in your profitability. You'd have to be brain dead not to do that. Right? 
So because about half of PayPal's transactions in the summer of 2001 were internal or ACH transactions, then our fundamental costs of transactions were half because we'd have half credit cards, we'd have half that and then the other half would be (partly) free. (Recall the zero cent cost of internal transactions within PayPal itself.) The question then is how do you give people a reason to keep money in the system. 
That's why we created a PayPal debit card. It's a little counterintuitive, but the easier you make it for people to get money out of PayPal, the less they'll want to do it. But if the only way for them to spend money ro access it in any way is to move it to a traditional bank, that's what they'll do instantly. The other thing was the PayPal money market fund. We did that because if you consider the reasons that people might move money out, well, they'll move it to either conduct transactions in the physical world or because they are getting a higher interest rate. So I instituted the highest-return money market fund in the country. Basically, the money market fund was at cost. We didn't intend to make any money on it, in order to encourage people to keep their money in the system. And then we also had also had like the ability to pay regular bills like your electricity bill and that kind of thing on PayPal.
There were a bunch of things that should have been done like checks. Because even though people don't use a lot of checks, they still use some checks. So if you force people to say, 'Okay, we're not going to let you use checks ever,' they're like, 'Okay, I guess I have to have a bank account.' Just give them a few checks, for God's sake.
I mean it's so ridiculous that PayPal today is worse than PayPal circa end of 2001. That's insane.
None of these start-ups understand the objectove. The objective should be - what delivers fundamental value. I think it's important to look at things from a standpoint of what is actually the best thing for the economy. If people can conduct their transactions quickly and securely that'better for them. If it's simpler to conduct their financial life it's better for them. So, if all your financial affairs are seamlessly integrated integrated one place it's very easy to do transactions and the fees associated with transactions are low. These are all good things. Why aren't they doing this? it's mad."

Note:  In 2007 PayPal transactions were ridicously expensive, 4% fee.. Someone paid me $146 via PayPal of which PayPal took $6 and I received $140.  ) http://sinaas.blogspot.nl/2007/08/paypal-meer-dan-4-over-146-euro.html

In this interview Musk explains the same sentiment, he wanted X.com to dominate world finance in one database:  

Retail underseller C&A called it the "snowball system" in 1906: "Terrain can be won by offering large amounts of useful clothing at prices that can be paid by the masses. Due to the higher sales expected, the gross margins (BCP%) per piece sold can be kept low, and a snowball system can be developed which leads to ever-increasing conversions. "
C&A snowball system, net profit increases as gross margin decreases
Original Dutch “Terrein kan worden gewonnen door grote hoeveelheden bruikbare confectie aan te bieden tegen prijzen, die door de massa kunnen worden betaald. Door de te verwachten hogere omzet kan de calculatie per stuk laag gehouden worden, en zo kan zich een sneeuwbal-systeem ontwikkelen, dat tot steeds hogere omzetten leidt.”

The same concept as used at Walmart and adapted by Jeff Bezos for Amazon.
Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com

Saturday, July 15, 2017

Koninklijke BAM Groep intrinsic value using Graham Number BAMNB


SECTOR: [PASS]  BAM is 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. BAM's sales of €6 976 million, based on 2016 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. BAM's current ratio €3 366m/€3 176m of 1.1 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] 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 BAM is €510 million, while the net
current assets are €190 million. BAM fails 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. BAM's earnings have declined and were negative in 2012 and thus fails the EPS growth test.

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. BAM's E/P of 2% using last years earnings 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. BAM has a Graham number of (22,5 x €0,12 EPS x €3,09 Book Value) = €2,9

DIVIDEND = 0,09 / 4,95 = 2% 

Conclusion BAM is only marginally profitable at the moment. There is no margin of safety if you buy now. Not a stock for the Defensive Investor.

Comments, questions or E-mails welcome: ajbrenninkmeijer@gmail.com