Friday 18 October 2013

Analysis of Lanxess

A German specialty chemicals company

Company: Lanxess

Business: A German specialty chemicals company that are focusing on plastics, rubber, intermediates and specialty chemicals. They are divided into three segments and several business units (too many to list here) but the segments are: Performance Polymers, Advanced Intermediates and finally Performance Chemicals.

Active: They are present on every continent in the world with the heaviest focus in Europe and Germany.

P/E: 8.0

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Lanxess is indeed very tempting with 8.0 but the P/B is slightly too high with 1.8 still according to Graham it is a very clear buy! Their earnings to sales is at 6% which seems to be pretty much what the chemical companies have but the ROE is excellent with 22.2%! The book to debt I am also not too happy about since it is at the ratio of 0.5. In the last five years they have had a yearly growth of 6.7% far above any inflation so they are very strongly expanding! This gives us a motivated P/E of 20 to 22 which means that Lanxess today is strongly undervalued by the market. They spend of course money on research to a level of 37% of their earnings which is full acceptable. The dividend they pay is unfortunately only 2% (I guess they need it to push their expansion) which is as little as 16% of their earnings so not fear of loosing that dividend and much room to increase it.

Conclusion: I must admit that I was very close to buy Lanxess instead of K+S that I in the end decided to buy now in October. The P/E is great, the ROE is great and the negative figures are not horrible enough to scare me away and Graham also gives his ok. So I would have no problems to step into Lanxess today and maybe it will indeed become my new company for November.

The stock will definitely be added to the Stocks of Interest page when I make the next update there.

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