Wednesday 26 June 2013

Analysis of Leoni

A German cable and wire company

Company: Leoni

Business: A Germany based company that have two large division: Wire & Cable Solutions which develops, produces and assembles wires and strands, optical fibres as well as complete cable systems. The seconds division is the Wiring System which develops and produces cable harnesses as well as complete wiring for the automobile industry.

Active: They are currently active in 32 countries world wide and are pushing expansion in the BRIC countries.

P/E: 7.6

The P/E is very nice with 7.6 and the P/B is not great but acceptable with the 1.4 especially if one compares it to Beijer Alma (BA) that are in the same line of business but have a P/E of almost 17 and P/B of 2.7. So Leoni is indeed looking good and according to Graham it is a very clear buy! The E/S is not great with only 4% that is less than half of what BA had. The book to debt is less good with 0.55 because their BA is beating them badly with 2.8. In the last five years they have had a growth of over 5% yearly which is ok. The motivated P/E therefore becomes around 17 to 19 so Leoni has a large space to move upwards in terms of stock price. They try to stay on top and for that reason they are spending 60% of earnings on research which I like but I guess that has to do with my background. They pay a fully acceptable dividends of 4.2% which represent only 31% of their earnings which means that there is plenty of room to increase the dividends payment.

Conclusion: I could buy Leoni today. They are looking very good even though there is a risk that once the automobile industry is collapsing then Leoni will also have significantly decreased earnings. I would also favour to buy Leoni compared to Beijer Alma since there seems to be more incentive for Leoni to increase in value in comparison to Beijer Alma and in opposition to BA they have had increased earnings with increased revenue.

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