Tuesday 17 December 2013

Analysis of Krones

A German machine and production line producer

Company: Krones

Business: A German producer of machines and production lines that are active in the fields of process, filling and packaging technology. Krones product portfolio contains intralogistics, information technology and factory planning. Their biggest field are the production line machines for the bottle and can shaped containers for water, beer, soft-drinks, still or sparkling wines and spirits. They are also highly active within the food, luxury-goods, chemical, cosmetics and pharmaceutical industries.

Active: All over the world. Over 90% of their sales are made outside of Germany. It was a bit funny to see their sales percentage divided into the different regions world wide because almost all of them were around 12-13% as if it was a strategically decided to diversify like that but I doubt that... I mean as a company one will in principle take every sale available. I think the reason might be that their competitors are also already present there... The Swedish company Sidel (Tetra Laval Group) as well as the German company KHS belonging to the Salzgitter Group (also on MDax and will be analysed shortly).

P/E: 28.8

contrarian values of P/E, P/B, ROE as well as dividend

The P/E for Krones is as high as 28.8 which means that I do not like it! The P/B is not much better since it is up at 2.3 which means that also Graham would have said no to this one. The earnings to sales are far form what I would have expected since it is only 2% and the ROE leaves a foul taste in the mouth with only 8%. The book to debt ratio is not good with 0.7 but it is ok. In the last five years they have had a yearly growth of 2.2% which if they would have been only German based I would have said is ok but since they really are not I consider this growth to be bad and it then also gives a motivated P/E of 9 to 12 which means that it is highly overvalued today on the market. They pay a dividend that we should speak very little of since it is only 1.2% but at least it only represents 35% of their earnings so it should be possible to keep it.

Conclusion: Graham and I turn this one down pretty strongly. They are in a nice German field of building machines and organizing production sites etc but it is also far, far too expensive today so a clear no, no.

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