Monday 3 June 2013

Analysis of Espirito

A Portugeese financial holding company

Company: Espirito Santo Financial Group S.A

Business: A financial holding company doing banking, insurance as well as investment banking.

Active: Main activity is in Portugal with insurance and classical banking. With the investment part they are more spread out in Spain, France, Switzerland, Brazil (good connection via language and old ties), USA, Angola and China.

P/E: 3.7

The P/E is very, very low with 3.7 since this bank is pushed down due to two reasons. The financial crises plus having their main activity in Portugal a country that was and still are hit hard by the crisis. The price to book is at a good 0.5 which gives a very clear buy according to Graham. The earnings per sale is low due to harder conditions with the very low interest rates. The book to debt with 3% is as low as Commerzbank and Deutsche Bank and one would wish that they would improve that one but I am sure that they will to follow the Basel III rules. Despite the crisis the group has managed to grow 5.8% per year over the last five years. This gives according to Lynch and Graham a motivated P/E of around 20 which means that they have plenty of space to improve upwards.

Conclusion: The company is looking interesting and they seems to have managed to survive the crisis fairly well which is probably due to their investment banking part and rich people running away with their money in the crisis countries. However... It is not easy to see if they have something hidden in their books and personally I would prefer to go for more Deutsche bank stocks.

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