Wednesday 25 December 2013

Analysis of MTU Aero Engines

A German producer of aircraft engines

Company: MTU Aero Engines

Business: A German engine producing company. They manufacture and develop commercial and military aircraft engines in all sizes. They have also started to maintain and repair industrial gas turbines.

Active: They claim to be present in all significant markets worldwide either in person or by affiliates. Still their biggest presence is in Germany and Europe with a small expansion into North America.

P/E: 21.2

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of MTU is too high with 21.2 and especially in combination with the P/B that is up at 3.4. This gives a clear no signal from Graham. The earnings to sales are at 5% so it seems to be ok and the ROE is also acceptable with 16%. The book to debt is however too low for my liking with 0.3. In the last five years they have had an nice yearly growth of 4.4% which then gives us a motivated P/E of 15 to 18 which means that it is only slightly overvalued on the market today. They spend a nice chunk of money on research since it corresponds to 65% of their earnings so I find it a little bit too much. They pay a small dividend of 1.9% which corresponds to 40% of their earnings so they should be able to keep it at least under the current conditions.

Conclusion: Previously, when it comes to producers of aircraft engines, I had only heard about Rolls-Royce from a girl I dated that worked there so I have now expanded my knowledge of these producers. Both I as well as Grahams formula says that the company is too expensive today even thought they have shown some really nice growth in the last five years but the P/E, P/B are too high and the dividends too low for being of further interest.

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