Friday 22 November 2013

Analysis of DMG MORI SEIKI

A German/Japanese machine tool construction company


Business: A German-Japanese company that was created from GILDEMEISTER that were previously also on MDax and the Japanese company Mori Seiki, both of which have been strong brand names in machine tool construction. They have three segments: Machine Tools (with Turning & Milling Technology, Ultrasonic/Lasertec, Ecoline & Electronics, all these are high tech machines for industrial applications), Industrial Services (Services & Energy Solutions, the energy solutions are suncarrier, windcarrier and cellcube. So they make solarpanels, windpower plants and highly efficient battery stations) and the final one is Corporate Services.

Active: They are present with sales offices and service locations in over 140 countries. Due to the merger they have not only a strong presence in Europe and Germany but also in Asia with Japan and China.

P/E: 18.5

Comment: I am looking at the data from 2012 which means that the Mori Seiki part has not yet been included therefore the analysis becomes GILDEMEISTER before the merger but I am looking forward to see the change and make a new analysis in 2014 based on the annual report from 2013.

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for DMG MORI SEIKI is too high for me with 18.5 and also the P/B is too high with 1.8 which gives according to Graham a no go! Their earnings to sales are at 4% which feels ok for an industrial company and the ROE is so, so with only 10%. The book to debt is however good with a ratio of 1. In the last five years they have had a yearly growth of 1.4% which is not so good, however 2008 was an excellent year and they had a significant revenue drop in 2009 which they have slowly built up again to levels even above 2008. The motivated P/E ends up around 10 to 13 which means that the stock is today overvalued according to this analysis BUT I have here not included the implementation of Mori Seiki which could be a reason for the higher evaluation. They pay a very small dividend of 1.6% which on the other hand only represents 29% of their earnings so hopefully they can keep that level.

Conclusion: I like this company since it is a boring industrial company where two cultures that are known to cooperate well together have made a merger. It will indeed be interesting to see next year what it looks like and how much they will manage to increase revenue, decrease costs and improve the profit. I do however definitely want to see that the merger works out well before I make any investment so just like Graham I also say no... for now...

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