Monday, 5 August 2013

Analysis of A2A

Italian multi-utility company with electricity, waste water, gas etc.

Company: A2A S.p.A.

Business: An Italian multi-utility company that are working with: Production, sale and distribution of electricity, Sale and distribution of gas, Production, distribution and sale of heat through district heating networks, Management of waste as well as Management of integrated water cycles.

Active: Main focus is of course Italy and besides from that they are present in the UK, Greece, Spain and Montenegro.

P/E: 7.9

 contrarian values of P/E, P/B, ROE as well as dividend
The P/E for A2A is looking really good with a P/E of 7.9 and with a P/B of 0.7 we receive a clear buy according to Graham. The earnings to sales are at 4% so better then both Veolia as well as Enel (this company is a bit of a mixture of the two). The ROE is 9% so pretty close to the 10% which would be acceptable. The book to debt is however at a ratio of 0.35 which I find low but infrastructure is expensive to build. The growth in the last five years has been a steady 1.2% which is a bit too low but their main presence is in all the countries that have been hit the worst in EU so that probably explains the low growth. The motivated P/E becomes something around 10 to 11 so the company is cheaper valued today on the market. They pay a dividend of 4.6% which represents only 37% of their earnings so room to improve. In the past they have been paying out much more in dividend and even at an unsustainable level but now they have brought it down to something more acceptable.

Conclusion: A2A looks like a good contrarian company and all the signals are telling that it is a buy. I will therefore add it to the list of interesting stocks the next time I make an update there. Before with the same amount of shares outstanding they were paying as much as 0.1 cents which today would represent 15% in dividends however they will not manage to get back to that and will have to decrease their debts instead. Still 4.5% is fully acceptable.

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