Sunday 6 October 2013

Analysis of Deutsche Börse

A German exchange company

Company: Deutsche Börse

Business: A German company that are one of the largest exchange companies in the world. They have five business areas: Cash Market, Derivative Market, Market Data + Services, Banking Settlement and Custody and finally Information technology.

Active: They are active in over 110 countries and as a bad example of that they are running the worlds biggest derivative market in the US which makes me go O.K. (and that is not a good ok!)

P/E: 16.9

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for Deutsche Börse is far above my liking with 16.9 and the P/B is also not something to hang in the Christmas tree since it is up at 3.7. So to this company Graham would simply had been shaking his head in disconcert. the earnings to sales is excellent up at 29% and the ROE I must admit is also excellent with almost 22%. But the book to debt makes me loose my jaw! A ratio of 0.01 is that normal? I have no clue about other exchange companies but even a very bad, bad bank has at least a ratio of 0.03 to 0.05 and those are the bad ones so 0.01 makes me feel uncomfortable (and it is the reason for the comment). In the last five year they have had negative growth of -4.5% which is simply bad but in good times much trading takes place and in bad times much less trading takes place and if we look from 2009 until now then it has indeed been the least liked bull markets ever and little trading is happening. Still I would assume them to have a similar growth to the "normal" growth of the stock market so around 6%. This gives us a motivated P/E of 16 to 19 which means that today the stock is P/E-wise fairly valued by the market. They pay an acceptable dividend of 3.7% which represent almost 63% of their earnings so a little bit too high for my taste.

Conclusion: Graham says no and so do I. I have no interest in buying this company today. I was also chocked to realise that they are the ones running the biggest derivative market in the world over in New York. My guess is that due to the derivate market dealings their leverage becomes extreme and that is the reason for their extremely low book to debt but I do not know for sure and I see no reason to dig deeper into it since this company is nothing for me as a contrarian.

If this analysis is outdated then you can request a new one.

No comments: