Thursday, October 13, 2016

ICT Group NV intrinsic value. Price (koers) is what you pay, Value (bedrijfseconomische waarde) is what you get.

SECTOR: [PASS]  ICT Group is in process management. 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. 
ICT Group sales of €72 million, based on 2015 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. 
ICT Group current ratio €72m/€32m of 1,9 passes this test...almost ;)

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 
ICT Group is €5 million, while the net current assets are €15 million. ICT Group passes this test easily.

[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. ICT Group's earnings were negative in 2012 and 2013, so the company fails this 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. ICT Group's E/P of 4% (using the average of the last 3 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. ICT Group has a Graham number of (15 x €0,5 EPS x 1,5 x €4,2 Book Value) = €6,8 

Dividend: €0.24/€10= 2,4% 

ICT Group has a strong balance sheet and the Value per share is increasing, but at the moment the Price (quoted value) seems too high for the Defensive Investor at €10.3 in October 2016. People who bought in 2012 are right to be satisfied with the company's as well as the share's recent performance.

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

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