Tuesday, February 13, 2018

Randstad intrinsic value based on Graham Defensive analysis



This is the current analysis using the criteria from Chapter 14 Defensive Investing from "The Intelligent Investor":

SECTOR: [PASS]  Randstad 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. Randstad's sales of €23,273 million, based on 2017 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. Randstad's current ratio €5 085m/€4 631m 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 Randstad is €880 million, while the net current assets are €454 million. Randstad 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. Randstad's EPS growth was 4% over the past 10 years, Randstad 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. Randstad's E/P of 6% (using 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. Randstad has a Graham number of (15 x €2,9 EPS x €23,1 Book Value) = €41 

Dividend: €2,76/€57 = 5%

Conclusion: Randstad is firing on all cylinders based on strong economic conditions and has a good 5% dividend. The stock price is a bit high but not ridiculous.

See: www.beterinbeleggen.nl for more in depth, qualitative analysis in Dutch.


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

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