Sunday 1 December 2013

Analysis of Evonik

A German specialty chemicals company

Company: Evonik Industries AG

Business: A German specialty chemicals company that are divided into three segments: Consumer, Health & Nutrition (specialty chemicals for consumer goods); Resource Efficiency (within materials and coatings they provide environmental friendly and energy efficient chemical solutions) and finally Specialty Materials (production of polymer and additives)

Active: Strong European focus but active in over 100 countries with production sites in 24 countries world wide.

P/E: 11.7

Comment: The analysis was made based on the last three years which only is of importance for the yearly growth for my contrarian analysis approach also they have higher short debt than what they had cash available.

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for Evonik is indeed pretty nice with 11.2 but the P/B is too high for me with 2.0 and this then leads to that it is only slightly outside of the Graham criteria. Their earnings to sales are very good with 9% and they ROE is great with 17%. The book to debt is at a ratio of 0.7 so ok but not more. In the last three years they have only managed to have a 0.8% growth which is bad! 2011 was an excellent year for them so 2012 they managed to drop down slightly in revenue. this then gives us a motivated P/E of 9 to 12 which means that today Evonik is fairly valued by the market. They spend 33% of their earnings on research which is a well balanced value. They also pay a pretty good dividend of 3.1% which represents 37% of their earnings so fully acceptable also that.

Conclusion: Due to the high P/B value Evonik ends up just outside of Grahams rule but when I look at this company my feeling is that one can actually buy a good company at a fair price today. They have a great ROE, great P/E and they pay a nice dividend. I fully understand if someone would make an investment in Evonik today.

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